 |
Episode #2317
Fighting Financial Predators
Brown: Have you ever experienced an overdraft on your bank account that seemed to get worse and worse? You’re not alone and there is a method to the madness. We are talking about financial predators, how to fight them and your consumer rights, next here on Black Issues Forum.
VO: Quality public television is made possible through the financial contributions of viewers like you who invite you to join them in supporting UNC-TV.
Brown: Good afternoon, everyone. Welcome to Black Issues Forum. I am Natalie Bullock Brown. Today many Americans are finding themselves financially challenged. Some even close to the brink of financial ruin. Why is this happening? Well, in a climate where personal debt is mounting, the cost of living is rising and a breakdown of the subprime lending market has set back consumers and financial institutions alike. The debate seems to have two sides. One side says that our dreary collective financial state is the result of predatory practices on the part of financial services organizations. Another side says blame falls squarely on the shoulders of consumers. Many who are financially illiterate or irresponsible. Which side is right? Which is wrong? We are going to look into a number of banking and lending practices to help us answer these questions and hopefully guide you to a stronger financial footing.
I want to introduce our distinguished panel of guests who will help to illuminate our issue of the day. First, Keith Corbett, Executive Vice-president for the Center for Responsible Lending based in Durham, North Carolina with offices in Washington, DC and California. I would also like to introduce Lucera Parker, Marketing Director for Mechanics and Farmers Bank, one of America’s oldest African American owned financial institutions. And we also have with us today Philip A Layman, Assistant Attorney General in the Division of Consumer Protection in the State Attorney General’s Office. Welcome, all of you, to Black Issues Forum.
Now since we want to cover quite a bit of ground, I am going to just try to methodically attack some of the different issues. So let’s start off with the subprime lending crisis and, Keith, could you just give us a little, just kind of couch it for us. Let us know what the basic issue is.
Corbett: The subprime lending crisis is a period in American history where lenders actually lent money without acknowledging the borrower’s ability to repay the loan through its entirety. Prior to this crisis and I would say it really proliferated from 2005, 2006, it got worse actually, they did not take into consideration the borrower’s ability to repay which is contra to any type of lending period.
Brown: And Lucera, as a banker, how has the subprime lending crisis affected your customers and your institution?
Parker: I would say M&F Bank is fortunate in that to be honest the current crisis and what has gone on for the last two years and what is going on now has had a fairly insignificant impact in terms of our loan portfolio, in terms of our customer base. Because the practices that the 1999 and the 2007 legislation spoke to about anti-predatory lending really did not have, didn’t cause any change in the way we do business. We, the things that Keith spoke about, making sure that borrowers have the ability to repay is part of our policy and procedure anyway. It is part of the way that we approach lending. So we had very little exposure to the kinds of loans. We don’t feel it in our customer’s best interest to put them in a loan product that doesn’t work for them because ultimately what that means is it doesn’t work for us either. And it is not in our best interest to create situations where our customers default on loans because then we are not able to do what it is that we are in business to do. And so we attempt to be in full compliance with the existing laws and even make certain that we have put into place procedures that may exceed that in terms of scrutiny of the borrower’s ability to pay and communication with borrowers when they may become delinquent so that we can stay on top of it because that is part of the relationship that we have with customers. That is part of the way that we look at it. So we have been fortunate in that generally speaking the subprime mortgage debacle has had less impact on us immediately.
Brown: So I am sure, well, maybe not, in the state Attorney General’s Office getting a lot of complaints about a lot of different things. How many complaints or how big of an issue is the subprime lending crisis for your office?
Lehman: It has been a big issue for us for a long time. And we have made it a priority, Attorney General Cooper has to advocate for strong laws in this area and a lot of people don’t realize it but North Carolina is out in front in the country on anti-predatory lending laws. We were the first state to pass a predatory mortgage lending law back in 1999 which we toughened up considerably a year ago. So this subprime crisis is a national crisis affecting everybody across the country. But there are pockets where it is a lot worse and North Carolina although we are definitely affected has not been nearly as bad as places like California, Florida, Ohio. So—but we do get a lot of complaints and one of the key things in this issue of people having difficulty with their loans is to communicate with their lender. We are hearing that from lenders saying that we want to talk to borrowers if they are in a delinquent status, we have the ability to try to work it out. And so contact us, don’t shut the door and avoid all the messages and phone calls.
Brown: Right. And so, Keith, just as a word of advice to our viewers, would you say that one tip would be to if you are facing foreclosure, or the threat of foreclosure, make sure that you contact your lender immediately?
Corbett: Immediately.
Brown: And what else would you say people need to do?
Corbett: The other thing that people need to do in addition to contacting their lender, deal with some of the community housing groups who are actually being, have received grants to help them in those situations. One of the biggest __ out there is that consumers, if they are not in delinquent, if they are not delinquent on their loan there is little relief. So a lot of people are struggling to make the payment. They are doing everything they can to make ends meet. And they are struggling quite a bit. But if they are not delinquent, then the lender is less inclined to help them. And I have met several people in that situation and if you look at what’s going on, the impact with gas prices, you know, people are really looking at a 50% increase in their outcome, I mean, their out-go each month just paying car, to drive. And so they are struggling. But a lot of people are toughing it out. They are trying to work two and three jobs and they are, you know, they are going to their churches and anyone else that they can to find relief.
Brown: So, Lucera, in your estimation, from your perspective as a banker, what would you say just, we are not trying to place blame on one side or the other, but what do consumers need to know about their rights that will possibly help them not fall into this sort of situation?
Parker: Well, I think it’s clearly in consumer’s best interest to start to deal with issues when they arise. Don’t even wait until you are facing a delinquency or a foreclosure issue. But you know when you are starting to feel pressed and if you have a relationship with your bank, you can—we don’t want to wait until you are, you to wait until you are in trouble to get in touch with us. It is true that we want our borrowers to come to us when they are in trouble. But the best thing to do is address your concerns and your financial situation, know what your overall financial situation is early and address changes in your life situation as they come up so that if the need be, while your credit has not been negatively impacted, while you are not delinquent, while you are still current on your outstanding loans. That is a much better time. It puts you in a much stronger position of negotiation to possibly work out a different arrangement with your lender as opposed to when you are already in trouble. So it makes sense to get in front of things as much as possible. We all know gas prices are up and going up as well prices of other consumer goods go up. And we know that those things are true. And I would recommend that that’s the case. I would also say that we definitely will work with our customers once they, if they have waited a little late and we do want to talk to you because it is, again, it is in our best interest that they be in a position to honor the terms of the loan relationship that we have with them. That just works out better all around.
Brown: So what is the flip side of what Lucera is saying because as Keith said, people are struggling and sometimes they just, for whatever reason, they may not get to the point, they may not even recognize that they are in trouble even though they are struggling. So once they get to that point where perhaps they are facing foreclosure or any other sort of financial emergency, what do they need to know about the rights of lenders and banking institutions that might help them to kind of wake up earlier than later?
Lehman: Well, one thing people don’t understand, people in a foreclosure situation is that the bank does not want to foreclose. The bank doesn’t want the house. We have been told by lenders that on an average foreclosure they lose about $40-50 thousand dollars so it is a loss for them. So the banks have in their own self-interest is to work it out. Not to foreclose but get the borrower back on track. Get the terms of the loan modified if necessary so the borrower can pay them. So there are things that can be done. There is a national hotline available at no charge, 1-800-995-HOPE for people who are facing foreclosure or a loan delinquency can call and get no cost counseling. In our office, and the commissioner banks have gotten together and put in some additional money so people can get not only counseling on the phone but can get a referral to a local counselor in their community, a credit counselor or a housing counselor that will intercede with them and communicate with the lender and offer other alternatives and programs to get the borrower out of delinquency and back on track. So there is definitely help there if people will reach out for it.
Brown: Great. And we will make sure to put that 800 number on our website so that you will have access to that. We also have a graphic that helps illustrate the enormity of the lending crisis as it has impacted not only African Americans but all Americans in general. And the Center for Responsible Lending has put together figures gathered from the Home Mortgage Disclosure Acts from 2005 and 2006 statistics. And, Keith, we are going to need you to kind of help us understand these numbers. Can you just take us through this graph?
Corbett: Sure. In 2005 and 2006 there were two products that were really push marketed to communities, particularly communities of color. And there was a 327 which was a three year fixed rate with a 27 year adjustable and a two year fixed rate, or a 228, where for 28 year adjustable. Over 50% of African Americans in 2005 and 2006 were actually steered into these products of which HUD has stated that 50% of those people could have been placed in prime product. And when we looked at the tables of the subprime tables, when they were having an adjustable rate versus a fixed rate, the difference in interest rate was less than 1%. So a person could have been placed in a 1% just a difference of 1%. And those loans are resetting now. And so if they were made in 2005 and they were a 327 they are adjusting in 2008 and that reset sometimes increases their mortgage payment up to 40% or more.
Brown: Wow. Well, and so I do want to move on but it just begs the question, begs to be asked, Lucera, how, if people’s mortgages are jumping that high that they are almost doubling, what can a bank do for a consumer in that sort of situation? What really is feasible so that both of you win? Because somebody, you don’t want to lose money and certainly consumers don’t want to lose their homes.
Parker: I hesitate a little bit to generalize about what can be done for consumers who find themselves in that particular situation. I can say that in our portfolio we don’t have that experience because we recognized early on that it is not in most customer’s best interest and, again, ultimately, that doesn’t work for us. And so when we do the pre-mortgage counseling that we go through with our consumers, our first time home buyers, we look at what their needs are and what their full financial situation is and we have that conversation and we give them their options about what we think fits their needs best to help them avoid just that situation. And so when this current crisis came on we did not, we had not put people in harms way in that way. So that was, that’s just not something I can really speak to. I think that it is the lender’s responsibility to make sure that they are talking about what consumers really need and what’s best for them. And that’s one of the increased protections that the 2007 legislation did was to make sure that lenders really identified the consumers ability to repay the loan. And go beyond what is stated income. But really look at their ability to repay the loan under the terms of the loan. You know, the full term, the fully indexed terms of the loan. So that will require them to do a better job of making sure that this customer, two, three years down the road doesn’t run into this kind of situation.
Brown: So just talk briefly about the 2007 legislation and how it speaks to consumer financial literacy and helps them to be more informed.
Lehman: The 2007 legislation was sort of an extension of the earlier predatory lending law and it was designed to capture just the problem Lucera was talking about, lending to, borrowers who don’t have the ability to repay. Now that seems like it is contradictory. Why would a lender do that? Well, the market has changed over the last 10 or 15 years. So you might have a mortgage broker, you might have some kind of local mortgage company that is originating the loan. And it is in their interest to sell, to get that loan out, as many loans out as possible. And at whatever terms they can get away with. It’s kind of like selling a used car. If you can sell a car that is worth $5,000 for $7,000 you are a good salesman. That became the kind of the ethic of parts of the mortgage industry. And as soon as they got the loan originated they would sell it to somebody else. So they didn’t have to worry about if the borrower couldn’t repay it in three or four months. It wasn’t their problem. They had already made their money. So the law was designed to tighten down on that practice and for subprime loans, borrowers have to be clearly qualified not only at the rate they are beginning with but the rate that is going to jump to in two or three years, the loans Keith was talking about. And it further restricts mortgage broker’s fees and it also requires documentation of these loans so that borrower’s income and employment. That is another big problem. A lot of these loans were originated without any documentation showing the borrower had enough money, enough income to pay the loan not only today but two years when the rate was going to jump. So I hope that law will help going forward. But there is a lot to clean up from the last two years.
Brown: Well, one of the things that seems to be at the heart of the subprime crisis is the fees that kind of kicked in. Especially, I have heard of prepayment penalties and the like. We are going to move from subprime to overdraft fees and protection and help our viewers understand what these fees really mean and what the terms really mean. So, Keith, can you just give us an overview of what banks mean when they talk about overdraft protection and what are the different options?
Corbett: Two types of options that exist with overdraft protection. One is an instant reserve account where if a borrower goes over the amount they have in their checking account the bank will extend a loan under the terms where the interest rate not to exceed probably, what, 18-21% in North Carolina. And so that is one type of over draft protection, the preferred type of overdraft protection from the Center for Responsible Lending’s standpoint.
The other type of overdraft protection is when a borrower exceeds the amount in their checking account and the bank will issue really it is not even called a loan, it is called a fee. A fee to extend credit. For example, my son is a student in college and he had overdraft protection on his ATM card so he went into Wendy’s to buy a cheeseburger and the cheeseburger ended up costing him $37 because he had had three, the meal came to $5. He had about $3 in his account. And so they extended a, they charged him a $34 fee to cover the rest of the payment. And so that is the overdraft protection that the Center for Responsible Lending has been totally aggressive in trying to find out a way to have banks and credit unions to stop charging those things or at least admit that they are loans and charging, you know, do it like a regular instant reserve. And the problem that we have is that most borrowers are placed. There is no opt out. It is hard to opt out particularly with a lot of banks. And so you automatically placed into this product. And one of the things we would love to see is at the point of sale, my son, if he had had the option of that hamburger, the cheeseburger, if he had the option of buying the cheeseburger and paying $37 at the point of sale he probably would have made a different decision. At least I would have encouraged him to. [LAUGHTER]
Brown: Let me get Lucera in here and talk about from the bank’s perspective, why are, are consumers always unable to make the type of decision to opt out or to opt in that Keith is referring to?
Parker: We give consumers the ability to opt out with a simple a transaction as a phone call to the branch. Or to our dedicated customer service department. So it is very easy for our customers to decided that they want this service taken off of their account. We also give our customers more than two options to cover accidental overdrafts. And we do encourage them not to use the overdraft protection as a loan. And when we determine that based on their transaction history they are acting like this is a line of credit of a loan then we will remove, we will revoke the privilege either temporarily suspended or remove it all together based on that individual customer’s behavior. And there a series of communications that we make with customers based on their ability to manage or wisely or unwisely their account. We give customers the option to—we automatically enroll them in the bounce protection with the ability to opt out. We also advise them that they can choose on automatic transfer from savings or the line, the reserve line that Keith gave, that Keith mentioned. And we also tell them that the best way to avoid insufficient funds fees is to manage their account wisely. If they got $3 in their account, they should not spend $7. That’s what’s incumbent upon all of us including myself.
Brown: Let me jump in. Let me ask you, so some consumers are going to anyway, they will be able to do exactly what you have said, some will not be able to do so. But what’s the trend? I mean, do you see more consumers—how often do you see consumers actually realizing, “You know what? This overdraft is not working for me. I need to have an instant reserve or I need to do something else. Or I need to take this off all together.” How often do you actually see that happen?
Parker: I would say that what our customer, and I can only speak on our customer’s experience, more often than not, rather than choose to opt out of the product, they are making better decisions on an ongoing basis. So they are not moving toward the link with the savings. They are not moving to the 17.99% master line product that we offer as the kind of reserve account. They are managing their accounts. So that’s what we have seen with the people who are currently in our product. They are making better decisions and so that’s been our experience. That’s what I can say.
Brown: So let me just, I am actually going to give you the last word, what can consumers do if they are finding that their banking institution is routinely charging fees—now there may be, probably will be, irresponsibility on the consumer’s part, but how do we manage this so that we as consumers are not constantly being depleted of our accounts by these fees?
Lehman: Well, there are a couple of things. One is, consumers ought to pay attention from the beginning. We have, there are federal disclosure laws that are, you know, lending institutions are required to disclose the rates and fees on loans and other products. They are there for a reason. So consumers, when they are starting a transaction ought to see what is going on here. What am I going to pay, not only today but two years from now. What kind of fees are being charged? It’s there in a fairly simple format. I mean, with a mortgage loan, you know, there are maybe 50 prices of paper. But you really only need to pay attention to a couple of those pieces of paper because they summarize what the costs are going to be. And the other I think very important principle is consumers have choices. You don’t have to get a loan from the person who sends you a mailer or calls you on the phone. You comparison shop. You can compare what does one bank charge versus another. You know, do you have access to a credit union? So there are many, many lenders out there, many financial institutions and borrowers should shop around and do what’s best for him or her.
Brown: Is it true that credit unions often offer lower fees or no fees as opposed to more traditional banks?
Lehman: That’s probably correct as a general rule. And credit unions are owned by their customers so they probably have a different perspective.
Brown: Well, I wish we could go on and on about this. There’s so much to talk about but I want to thank each and every one of you for being here and sharing your expertise with us today. Once again, we are grateful to have had such knowledgeable experts on our show today. And if you would like to get in touch with our guests or obtain a transcript of today’s show, visit us online at unctv.org/bif. And when you visit be sure to give us your comments and program suggestions. You can also call us on the BIFline at 919-549-7167. Be sure to meet us right back here each Sunday afternoon at 4:30 and for Black Issues Forum, I am Natalie Bullock Brown reminding you to be encouraged no matter what. Peace and blessings.
[END OF RECORDING] [PH]
|
