The New CFPB Rule is a Testament to the Power of Community Organizing

Seniors were the largest age group of payday loan borrowers in California last year but a new CFPB rule will better protect borrowers.

Dear CRC Supporter:

Yesterday, the CFPB released a new rule that will protect working families from predatory loans and the financial heartaches they create.

This rule is a victory and is a testament to the power of community organizing by CRC, our members and our allies. Borrowers will benefit from new safeguards requiring lenders to better assess their ability to repay a loan and from restrictions preventing lenders from making multiple, unsuccessful attempts to debit their bank accounts, a practice that results in costly overdrafts and closed bank accounts.

As the CFPB began its work to write this rule, CRC members and their clients courageously stepped up to share their experiences. Working with our partners, we organized listening sessions with the CFPB and with our Congressional representatives where Californians talked about how they got caught in the payday loan debt trap- a cycle of costly rollovers that are profitable for the industry, but that extract precious income and assets away from working families.

California Consumer Leadership Academy

In 2015, CRC partnered with CRL-California and California LULAC to organize the first ever California Consumer Leadership Academy.  Eight courageous women participated in this day-long training, shared their experiences, and crafted strategies on how to stop predatory lending practices in our communities.

At the CFPB’s field hearing where it announced its draft proposal of the rule, I shared the story of a Santa Cruz borrower who had worked with a CRC member after getting a payday loan and then being illegally harassed for repayment of it. We applauded the CFPB’s initial proposal, while also highlighting where we thought the safeguards could be stronger.

Once the public comment period opened, we activated consumers, CRC members and allies, and engaged with local, state, and federal elected officials to ensure the rules were as strong as possible. Consumers shared their stories in the media and we helped them to file CFPB complaints. Local mayors voiced their support. As a result of CRC and our member’s organizing efforts, the LA County Board of Supervisors passed a unanimous motion in support of strong rules. California state legislators, as well as our two senators and more than half of our congressional delegation (led by Representative Maxine Waters) weighed in with their support.

Over 100 California nonprofits also weighed in with the CFPB and our message was loud and clear: California families need a strong CFPB rule that protects their income and assets from predatory lenders.

We applaud the CFPB for its thoughtful approach to this rule and we want to extend our gratitude to our members and allies who worked tirelessly to organize and to protect our communities from predatory lending. We’re also grateful to the Silicon Valley Community Foundation for their support of this work.

We anticipate the industry will attempt to get this rule overturned- either through the courts or the Congressional Review Act, but rest assured we will continue our advocacy in support of this rule and the other work the CFPB is doing to stand up for Main Street.

My statement on the rules is now available on CRC’s website and you can read a CFPB fact sheet about the rules here.

Thank you for your support.

Paulina Gonzalez

Executive Director

CRC’s Response to the New Threats Facing our Communities

Dear CRC Members and Supporters,

Like you, we were shocked and saddened by the violence and hatred demonstrated by white supremacists and neo-Nazis chanting anti-Semitic and racist chants in Charlottesville, culminating with the murder of Heather Heyer, a nonviolent protester. We were horrified to watch the president refuse to condemn the violent perpetrators and instead equate the actions of those who espouse hate with those who resist it. It was heart wrenching and rage inducing. Like many of us, I found it difficult to sleep that night. I found solace at church the next day when my pastor compelled us to keep our eyes on the prize through our sorrow and anger.

Today, I write to you to remind us to collectively keep our eye on the prize. CRC staff are working hard in this moment not just to respond, but to build; and to do it in greater partnership with our coalition members. We know our communities need our members and our work more than ever. While the forces in power are trying to drive us further into the margins, we are pushing back and are determined to do all we can to achieve our vision of a fair and inclusive economy that puts the needs of communities of color and low income communities at the center.

Thankfully, the five-year strategic plan that our board, members, and staff helped build a year and a half ago continues to give us the vision and structure to work toward our five strategic goals: holding financial institutions and regulators accountable to the needs of our communities, building economic opportunity, protecting and building family and household wealth, building people power through community engagement, and deepening and broadening our impact.

Since the election, the communities we serve are experiencing unprecedented pressures that threaten their financial health and stability. The race baiting, fear mongering, and overt racism we saw on the campaign trail is now a policy agenda. It is reflected in the proposal to build a wall, the Muslim Ban, attacks on affirmative action, dramatically increased detentions and deportations, proposed budget cuts and weakening of rules at HUD, a proposed ban on transgender people serving in the military, attempts to disenfranchise people from voting, and the attacks against the Consumer Financial Protection Bureau and the Community Reinvestment Act (CRA), our two strongest tools that ensure that all communities have access to safe and transparent credit and financial products that help build wealth.

A recent report from the Treasury Department outlined this administration’s goals to relax banking safeguards and to modernize the CRA. We will work to ensure that any CRA modernization plans do not entail weakening the law or reducing investment in California’s communities. CRC will also continue our work to preserve the common-sense safeguards that were implemented under Dodd-Frank to prevent another Great Recession.

While CRC will continue our CRA accountability work, I also want to update you on how we’re responding to these new threats.

CRC is Responding.

At three emergency summits that we co-hosted with the Greenlining Institute after the election, we heard concerns from our members and allies in Fresno, Los Angeles, and San Francisco about this administration’s approach to housing, its attacks on immigrants and people of color, and how local and state governments will need to step up and fill in the void at the federal level. Service providers also raised the need for dramatically increased organizing and advocacy.

CRC is taking these challenges head on. Our organizational mission, vision, and strategic plan call for no less. As the current administration further attempts to divide our country and marginalize the most vulnerable among us, we will fight back and work even harder with you to bring our communities together and to advance our shared goals in the following ways.

Resisting Economic Displacement: CRC is working with our local partners and members to fight displacement of low-income communities and communities of color in the East Bay, with a special focus on the mechanics of how this is happening, including who is financing this activity, and how we can stop it.

Protecting Immigrant Financial and Economic Resources: Next month, we will release the results of a survey of our members that reveals how their immigrant clients are being impacted, including some who have even gone “underground” in response to this new climate of fear.

We are also building from the momentum of a sold-out, standing room only symposium we co-hosted in March for front line providers in the East Bay focused on financial resources for immigrant families. CRC will be engaging with immigrant families and the service providers they trust to understand the unique financial and economic challenges they’re facing, and to identify and expand access to resources that can help, starting with better banking practices.

Making Government a Force for Good, not Harm: Many families are being ensnared in debt traps created both by government fines and fees and the abusive debt collection practices used to collect on them. The lack of income to pay a parking or traffic ticket can quickly spiral out of control into mounting debt, ruined credit, driver’s license suspension, job loss, criminalization, and incarceration. We believe now more than ever, local and state governments need to stand up on behalf of working families, not against them. We’ll be engaging in this new area of work with our California members and allies, and also with our long-term partners in three states: North Carolina, Illinois, and Maryland.

CRC stands in solidarity with our members, partners, and allies, and we will continue to advocate for policies that support communities of color and working families, and against policies that would cause them harm.  In what often feels like dark times, we are keeping our eyes on the prize, with the belief that together in struggle we can and will prevail.

We appreciate your support and I welcome your feedback.

In solidarity,

Paulina Gonzalez

Executive Director

The California Reinvestment Coalition

California Reinvestment Coalition Goes to Washington

Last week, members of the California Reinvestment Coalition traveled to Washington, DC, for the annual National Community Reinvestment Coalition conference.  The theme this year was “Creating a Just Economy.”

Keynote speakers during the conference included Federal Reserve Chair Janet Yellen, CFPB Director Richard Cordray, Representative Maxine Waters who is Ranking Member of the House Financial Services Committee, Comptroller Thomas Curry, Senator Sherrod Brown who is Ranking Member of the Senate Banking Committee, Mark Morial, CEO of the National Urban League, and John Taylor, president and CEO of NCRC.

There were a number of sessions focused on reinvestment, affordable housing, small business lending, home ownership, gentrification, economic development, CDFIs, community health benefit agreements, fintech, rural development, fair housing, the racial wealth gap, the Community Reinvestment Act, redlining, and more, including a session entitled “Defending the CFPB” that Paulina Gonzalez, executive director of CRC, moderated.

In addition to attending the conference, CRC members also met with members of the California Congressional delegation and with bank regulators and their staff as well.  During the meetings, CRC members shared what they are seeing from their work in communities, specifically around issues related to small business lending, affordable housing and economic development.

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The president’s so-called “skinny budget” proposal was one of several topics covered at the meetings, and more background about the additional issues is included below.

Program/Department

Budget Proposal Impact on California

HUD Budget 

Eliminates CDBG, reductions for key programs serving renters Loss of $357 million in CDBG funds for CA cities;

$130 million in HOME funds for new affordable housing; Thousands of tenants to lose rental assistance vouchers;

More costs for Medicaid as seniors move to nursing homes w/o Meals on Wheels;

Increased homelessness;

CDFI Fund

Eliminated

Fewer loans, less support for Small Biz Owners. There are 86 CDFIs in CA that made 39,000+ loans in FY 2016.

Legal Services Corporation

Eliminated

11 CA orgs. receive funding through LSC.

Small Business Administration

Prime program defunded; Microloan program frozen Less financing available for CA small businesses.

NeighborWorks

Eliminated

Will harm efforts at building assets, including for 1st time homebuyers, also negative impacts for affordable housing.
AmeriCorps Eliminated

Work on tax returns, literacy, emergency response, health, and economic development.

 

Community Reinvestment Act

This year, CRA celebrates its 40th anniversary. Because of the CRA, financial institutions are helping to meet important community credit needs and building consumer and community wealth, through small business lending, mortgage lending, affordable housing finance, community development activity and bank branch and account access.

  • California Reinvestment Coalition members and other community groups have recently negotiated win-win community commitments with a number of banks, including City National, Bank of Hope, Cathay Bank and Mechanics Bank.
  • But bank regulators need to be more rigorous and timely in their CRA and Fair Lending examinations of banks. Wells Fargo had not had a CRA rating made public in 9 years, and several banks, such as BancorpSouth and Evans Bank that received Satisfactory CRA ratings were later sued for redlining.
  • Regulators should encourage banks to develop Community Benefit Plan agreements with local community groups, and incorporate these agreements into any bank merger approval and subsequent CRA exams.
  • Regulators should also provide CRA downgrades to institutions that engage in discriminatory, unfair, or deceptive practices, or that finance the direct or indirect displacement of low and moderate income people and communities of color, or that finance lenders who make predatory loans in these communities. Banks must diversify management and staff, and develop robust supplier diversity programs.


Rural Communities

Rural communities in California face unique and significant challenges. Banks are well placed to help local communities develop and grow through home mortgage and small business lending, affordable housing investments and low cost accounts.

  • But nonprofit groups and even some banks report that banks only lend and invest in geographic areas that are subject to “full scope” regulatory review (via CRA exams),  that tend to focus on larger, urban areas, especially for the largest banks.
  • Bank regulators should expand the number of full scope areas for banks that are among the biggest depositories and lenders in smaller, rural communities. Branch closings, especially in rural areas, are also effectively limiting access to banking for consumers.

Protect CFPB

The Dodd Frank Act and the creation of the Consumer Financial Protection Bureau are the most effective and publicly popular responses to the financial crisis.

  • The CFPB has secured over $12 billion in consumer relief, more than all of the other, relevant federal agencies combined.
  • The CFPB developed common sense rules that brought order and transparency to mortgages (Qualified Mortgage and QRM rules, home loan modifications (servicing rules, including successors in interest protections), and the collection of home loan data (HMDA rule).
  • Additionally, CFPB enforcement actions have protected consumers and communities from unlawful lending discrimination and unfair and deceptive practices.
  • Importantly, over 1 million consumers (including over 118,000 Californians) have already taken advantage of the CFPB’s user-friendly consumer complaint database to file complaints -some telling their stories – to seek relief but also to inform other consumers and CFPB enforcement officers about problematic practices and actors.
  • The CFPB’s Director, structure and authority must be vigorously protected.
  • Important CFPB rules on payday lending, prepaid cards, mandatory arbitration, debt collection and small business loan data must be finalized and protected from repeal.
  • We also support the CFPB’s work on issues that have important impacts on consumers, ranging from student loans to credit reporting agencies to financing for cars.

Small Business Lending

  • Small business lending has increased since Dodd Frank Act, not decreased as some Dodd Frank critics have suggested. But small business loans are still less available in LMI neighborhoods and neighborhoods of color
  • And many small business owners looking for credit from banks are relegated to higher cost and variable rate credit cards, not term loans.
  • 95% of the small business loans in CA from JPMorgan Chase Bank are credit card loans. While credit cards serve a purpose, they can come with higher costs, variable rates and are not well suited for the longer term capital needs that many businesses have.
  • Dodd Frank Section 1071 data would bring much needed transparency into who is receiving small business loans- and who is not. In the same way that HMDA data created greater transparency in the home lending market, 1071 small business data will shed light on small business lending trends, highlight disparities, and likely lead to increased lending.
  • Fintech, online, and marketplace lenders can present opportunity, but some are clearly also creating harm. CDFIs and community lenders are spending precious capital and staff time refinancing small business owners out of predatory fintech loans and merchant cash advances.
  • An Opportunity Fund analysis of 150 “alternative loans” found an average APR of 94%, and among Hispanic borrowers, the average monthly payment was more than 400% of take-home pay.
  • Advocates are concerned about a weakening of consumer protection under any OCC national fintech charter which will lead to preemption of state laws, and are concerned that the OCC has not shown itself to be a strong bank regulator (see, Wells Fargo).
  • We join Congressman Cleaver in raising concerns that fintech lenders are violating fair lending laws by not making good credit available to neighborhoods of color, that fintech algorithms may be biased, and that predatory fintech loans are destabilizing small business owned by women and people of color. The CFPB and other agencies must vigorously enforce fair lending laws against predatory and discriminatory fintech lenders. Bank partnerships with fintech lenders must be thoroughly scrutinized to ensure fair lending and consumer protection laws are followed
  • In addition to bank and fintech loans, small businesses are vulnerable to high cost products like Merchant Cash Advance and installment loans that can financially sink business owners instead of helping them.

Homeownership

Home loans are hard to come by in neighborhoods of color. Banks are increasingly focused on making jumbo loans which disproportionately benefit white borrowers, while making fewer loans to Latino and African American borrowers, and abandoning FHA loans in favor of their own, unproven products, with less than impressive results.

  • Any future GSE reform must maintain a duty to serve communities and retain affordable housing goals. Currently, Fannie and Freddie need to be held accountable to meeting ambitious affordable housing goals, and should offer more flexible products to qualified homeowners.
  • We are concerned about a return to redlining, and hope to see DOJ, CFPB and HUD continue their important work in enforcing fair housing and fair lending laws.
  • HUD is currently investigating CRC’s first HUD redlining complaint (more information and graphs below), filed against OneWest Bank for having few branches and making few home loans in neighborhoods of color in six Southern California counties.
  • Given our aging population, increased oversight is needed in the reverse mortgage market to ensure that seniors are not taken advantage of by loan originators and servicers.
  • CRC is deeply concerned that seniors are continuing to lose their homes unnecessarily due to servicer bureaucracy, a lack of strong oversight of this industry by HUD, and a very limited infrastructure to help seniors and their families avoid needless foreclosures.  The elimination of funding for Legal Aid organizations will exacerbate this problem.

Affordable Rental Housing

California continues to suffer from an affordable housing crisis. The California Housing Partnership Corporation estimates that California needs 1.5 million affordable homes to accommodate the state’s lowest income residents.

  • Any HUD budgets cuts to key programs such as HOME, CDBG, Rental Assistance and Low Income Housing Tax Credits, could be devastating.
  • California nonprofit housing developers report that many investors, including banks subject to the Community Reinvestment Act, are pulling back from existing commitments in tax credit deals and attempting to renegotiate terms in light of pending tax reform. The result is fewer units produced and more subsidy coughed up at the 11th hour by desperate nonprofits who then must forego developer fees, and local governments which must contribute additional, unplanned subsidies.
  • Banks should receive CRA rating downgrades for such behavior as well as for seeking community development lending credit for loans that foreseeably lead to displacement of low and moderate income residents the CRA was meant to benefit.
  • CRC is deeply concerned about Fannie Mae’s recent commitment to guarantee up to $1 billion in debt backed by single family rental homes owned by private equity giant Blackstone.
  • Fannie Mae and Freddie Mac must continue to invest in the National Housing Trust Fund and Capital Magnet Fund.
  • Importantly, HUD must continue to implement Affirmatively Furthering Fair Housing obligations and assist local jurisdictions in meeting critical housing needs, fighting displacement and creating access to areas of opportunity for all.

Immigrant Access

The current political environment, with its changing policies and harsh rhetoric is threatening to drive immigrant communities out of the country, or out of sight. A recent CRC survey of confirms that many of our organizational members are seeing clients go underground, fail to show up for jobs, and forego access to needed services because they are concerned about ICE.

  • Bank regulators and banks should work together to clarify and simplify the privacy data rights of immigrants so they will not fear that banks will share their private data with the government.
  • Banks should also be encouraged to lend directly to qualified immigrant homeowners and small business owners who may have ITIN numbers, as well as invest in CDFIs and community lenders that make such loans.
  • For banks serving large immigrant populations, they should consider what information may be helpful to share with their customers about power of attorney and other bank access issues should a household member face deportation.

Payday lending

Payday lending continues to be a scourge on working families, charging 400% APR for short term loans that trap unsuspecting consumers in cycles of debt.

  • The CFPB has designed well considered and reasonable rules to protect consumers against abuses.
  • Federal intervention is needed as payday lenders and lobbyists have a stranglehold in Sacramento.
  • Banks should be incentivized to continue to develop small dollar alternatives to such products and to assist CDFIs and other community lenders that seek to fill this niche, and should also be penalized in their CRA exams for any financing to high-cost, predatory lenders.

Overdraft

According to the CFPB, the majority of overdrafts are on transactions of $24 or less and are repaid within 3 days or less. The CFPB calculated that with a median overdraft fee of $34, this is equivalent to a loan with a 17,000 APR.

  • It is telling that payday lenders defend their triple digit APR loans by saying consumers are merely making informed decisions to take out payday loans because they are less expensive than overdraft fees.
  • Banks continue to overly rely on overdraft fees as a source of fee revenue, to the detriment of their clients. CFPB rules on abusive overdraft policies are important, and all regulators should independently examine the impact of overdraft on bank customers, and work with their banks to end this product.

 

More on CRC’s Redlining Complaint Against CIT Group

Redlining Complaint Against OneWest Bank filed by California Reinvestment Coalition

Mortgage lending in 2015 (CRC)

The complaint alleges that OneWest Bank’s lending to borrowers in communities of color is low in absolute terms, low compared to its peer banks, and is lower than one would expect, given the size of the Asian, African American and Latino populations in Southern California.

Branch locations OWB

As part of the complaint, an analysis of the bank’s assessment areas found that OneWest has only 1 branch in an Asian majority census tract, no branches in African American majority census tracts, and 11 branches in Hispanic majority census tracts.

Branches in Asian, African American, and Hispanic majority trats (OWB)

While OneWest’s foreclosure record is not part of the redlining complaint, analysis by CRC and Urban Strategies Council found that OneWest was nine times as likely to foreclose in communities of color as compared to extending mortgage loans in communities of color.

OWB foreclosures vs originations

How Much Money Does Wall Street Spend on Lobbying and Campaign Contributions?

occupy-wall-street-political-cartoon-lobbyists

Political cartoon by Mike Luckovich, Atlanta Journal Constitution

A new report from Americans for Financial Reform provides a troubling window into the amount of cash pouring into Congress from Wall Street since the 2008 crisis -it’s over $2.7 million a day, and more than $3.7 million per member of Congress!

Wall Street Money in Washington,” is a 62-page examination of political spending, draws on a special data set compiled by the Center for Responsive Politics for AFR in order to provide a more precise look at financial industry spending than is otherwise possible.

Campaign Contributions: $1.2 billion. Individuals and entities associated with financial reported making $1,201,417,199 in contributions to federal candidates for office during this election cycle. The financial sector’s contributions were almost twice that of any other specific business sector identified in the data. Of the $688,150,613 in party-coded contributions by PACs and individuals associated with finance, 55% went to Republicans and 45% went to Democrats.

Five U.S. Senators and two House members were among the biggest Congressional recipients of financial sector contributions. Sen. Marco Rubio (R-FL) topped this list with $8,687,969. The other senators were Ted Cruz (R-TX), with $5,482,011; Charles Schumer (D-NY), with $5,345,563; Rob Portman (R-OH), with $4,158,259; Pat Toomey (R-PA). Members of the House of Representatives were led by House Speaker Paul Ryan (R-WI), with $5,727,069; and House Majority Leader Kevin McCarthy (R-CA), with $3,397,980.

Lobbying: $898 million. The financial industry reported spending a total of $897,949,264 on lobbying in 2015 and 2016. This puts the sector in – close – third place, behind the Health sector, which spent $1,022,907,176, and a category of “Miscellaneous Business,” a sector that that itself probably includes some Wall Street lobbying by business groups with a broader focus than only finance.

Since 2008, the financial services industry has spent more money on contributions and lobbying than it did before the crisis, and the total in this cycle is the highest yet. 

“The entire apparatus of government operates in an environment flooded with millions of dollars in Wall Street cash on a daily basis,” said Lisa Donner, executive director of Americans for Financial Reform. “If you want to understand why finance too often hurts consumers, investors and businesses far from Wall Street, take a look at these numbers.”

You can read the whole report on the Americans for Financial Reform website. 

 

The CFPB’s Impact in California

Have you heard? Yesterday was the 5th anniversary of the Consumer Financial Protection Bureau.  In that short time, the agency has built a reputation for dramatically increasing transparency into the financial services market, leveling the playing field between consumers and financial corporations, and putting bad actors on notice that they will face consequences.

bday cake

Senator Elizabeth Warren is widely credited with the idea of an agency that would stand up for financial consumers, and the CFPB was included in the Dodd Frank financial reform that was passed in response to the mortgage meltdown.

While advocates had repeatedly warned federal and state regulators and elected officials about the predatory mortgages that were being made, these warnings fell on deaf ears.

IMG_4294

Predatory loan advertising

In the summer of 2013, CRC and our allies urged the US Senate to confirm Richard Cordray as director of the CFPB and we were happy to see that he confirmed on July 16, 2013.

CFPB confirm!

CRC and our allies delivering over 25,000 petitions from Californians, urging the US Senate to confirm Richard Cordray.

Since then, Cordray and his CFPB colleagues have been busy!

In an April snapshot about California and complaints submitted by Californians, the CFPB reported:

1) As of April 1, 2016, Californians had submitted 118,900 of the total 859,900 complaints the CFPB had received at that point, or about 14%.

2) Complaints from Los Angeles and San Francisco accounted for nearly 50% of these complaints.  (CRC won’t claim credit for all of the San Francisco complaints, but we receive a fair amount of phone calls from harmed consumers and we frequently suggest making a complaint to the CFPB if it is accepting complaints for that particular product.  Not only does this hopefully lead to redress for the affected consumer, but it also helps the CFPB to see if there are concerning trends- for example if a lot of consumers are complaining about a particular company or product).

3) Speaking of “lots of complaints about a particular product,” mortgages were #1 most complained about product in the April snapshot, accounting for 32% of complaints.  In fact, complaints from California were more likely to be about mortgages as compared to the number of complaints made about mortgages at the national level (about 26%).

4) Debt collection was also frequently complained about, representing 24% of all California complaints, as compared to 26% nationally.

5) Most complained about companies: The CFPB received the most complaints from California consumers about Bank of America, Wells Fargo and Experian.

We’re including five examples of how the CFPB has stood up for consumers below:

1) Stopping Illegal Harassment of Payday Loan Borrowers: The CFPB has stopped companies from engaging in illegal and predatory behavior- like Ace Cash Express illegally harassing their customers into rolling over their payday loans. In announcing the settlement, Director Cordray explained: “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”   Take a look at this graphic from the CFPB’s settlement with Ace Cash Express.  It’s from their new employee training manual and provides a clear diagram on how Ace tried to keep its borrowers caught in the payday loan debt trap:

ACE Cash Express

2) Targeting Enablers Too: The CFPB doesn’t just target bad actors, it also targets companies that enable bad actors- like this California based lead generator (D and D Marketing, doing business as T3Leads (T3)) that sold consumer loan applications as “leads” to small-dollar lenders. The CFPB explained that “T3 failed to vet or monitor its lead generators and lead purchasers, exposing consumers to the risk of having their information purchased by actors who would use it for illegal purposes. T3 allowed its lead generators to attract consumers with misleading statements and took unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of the loan products for which they apply. T3’s conduct was unfair and abusive….”

To understand why online lead generators can be so bad for customers, take a look at this NPR Story: I applied for an online payday loan: here’s what happened next.

3) Loan Modification Scam Artists: In some ways, California was ground zero for the mortgage meltdown, especially since many of the most predatory lenders (like Countrywide) were headquartered in Southern California.  Since the mortgage meltdown, more bottom-feeding vultures have emerged, preying on desperate homeowners with promises of costly loan modifications that never materialize.  In July 2014, the CFPB, FTC, and state regulators announced a sweep against these scam artists.  The Bureau filed three lawsuits against these companies and individuals who had collected more than $25 million in illegal fees for services that were never delivered.  California was also “well-represented,” with a number of these scam artists located in our state. The CDPB’s complaint alleged that one of these firms,  Clausen, Cobb, and CCMC “managed, staffed, and supported the deceptive loan modification operations of Stephen Siringoringo’s southern California law firm. The State Bar of California initially referred the misconduct to the CFPB.”

4) Predatory Mortgage Loan Servicing: The CFPB hasn’t only gone after scam artists- it’s also worked to stop companies who are cutting corners and hurting their customers in the process.  One such company is Ocwen, a mortgage loan servicer.  In 2013, the CFPB announced a $2 billion settlement against Ocwen for “systemic misconduct at every stage of the mortgage servicing process.”  The settlement also covered homeowners with loans from Litton (a servicer formerly owned by Goldman Sachs who had also received low marks for the way it treated its customers) and Homeward Residential Holdings LLC (formerly American Home Mortgage Servicing Inc.).

5) Protecting Mortgage Customers: During the “Wild West” days of mortgage lending leading which later caused the mortgage meltdown, lenders routinely rewarded their staff members for putting customers into more expensive mortgages.  Surprisingly, this practice was allegedly still in place at RPM Mortgage, according to a 2015, $19 million settlement with the CFPB.

If you’d like to learn more about the CFPB, check out these resources:

Consumers Count: Five years standing up for you

CRC Hosts CFPB Mission District Tour on Small Business Displacement

Cover Picture

Liana Molina discusses displacement of local small businesses at the corner of 16th and Valencia in the Mission District, San Francisco

Yesterday, CRC hosted a visit and tour by the Consumer Financial Protection Bureau (CFPB) in the Mission District in San Francisco.  CFPB Director Richard Cordray and Assistant Director Grady Hedgespeth met with local small business owners and leaders from CRC member organizations including MEDA, Opportunity Fund, and Renaissance Entrepreneurship Center who support small businesses with capital and technical assistance.

Displacement in the Mission

In the past few years, growth in the tech sector has created enormous pressure not just on housing rents in the Bay Area, but on commercial rents as well.

The displacement of neighborhood serving small businesses in the Mission is especially troubling, given the critical role they play in supporting, serving and employing longtime residents of the Mission.  Small business owners have also complained about difficulty they face in obtaining bank loans, and research by CRC confirms that small business lending by the five largest banks has dropped dramatically since the recession.

Under the Dodd-Frank financial reform, the CFPB is charged with collecting data about small business lending.  In February this year, the CFPB announced that writing these rules is considered a near term priority goal. Similar to the Home Mortgage Disclosure Act, these new rules are expected to increase transparency (and accountability) about who is getting small business loans- and who isn’t.

Small business owners share their experiences and challenges

Director Cordray and Assistant Director Hedgespeth met with several of these small business owners during the CFPB’s visit.  The first stop on the tour was Venga Empanadas, where co-owner Pablo Romano shared his experience in obtaining financing to open his restaurant.  Denied financing by a bank, Mr. Romano connected with Opportunity Fund, a Community Development Financial Institution (CDFI) who provided him with a $45,000 loan, enabling him to sustain and grow his business which now has eight employees.

D'Maize

Luisa Estrada, owner of D’Maize Restaurant and Catering speaks with Director Cordray.

Next, Zenaida Merlin and Luis Estrada, owners of D’Maize Restaurant and Catering, shared how a small business loan of $80,000 from Mission Economic Development Agency’s (MEDA) new CDFI Adelante loan fund meant that D’Maize was recently able to expand their business to a full-service restaurant.  They now employ 22 people from the local community.

Elsa Valdez, the owner of El Salvador Restaurant, explained how she benefitted from working with MEDA, who helped her to get a loan from KIVA to help pay for improvements to her restaurant, which has been family owned for over 20 years.  Ms. Valdez wants to continue improvements to the restaurant and growing her business.

Paula

Paula Tejada, owner of Chile Lindo Delicatessen and Coffee Shop

Paula Tejada, known as “The Girl from Empanada” is the owner of Chile Lindo Delicatessen and Coffee Shop, a business she first purchased in 1995.  Working with Renaissance Entrepreneur Center, she received technical assistance on running her business, including their 14 week business planning class focused on marketing, management, operations and finance.

Lunch at San Jalisco

The tour concluded with lunch at San Jalisco, owned by Dolores “Josie” Padilla-Reyes.  She took over the restaurant from her parents in the 1970s, but after rent was increased threefold, she had to close the café and reopen the eatery in its current location.  Concerned about being displaced again, she worked with the Mission Economic Development Agency (MEDA) to secure a loan to purchase her building, preventing further displacement.

Len Rogers, the owner of the Electric Bicycle Superstore, also joined the lunch.  He launched his small business in 2008 and it has grown steadily since then.  Len was denied by multiple banks for credit, making him a perfect target for expensive merchant cash advance companies. After struggling with unsustainable payments required by multiple predatory finance companies, he connected with Opportunity Fund, who refinanced him into an affordable, responsible small business loan.  Len was also a client of Renaissance Entrepreneurship Center, who helped him get a KIVA loan and provided consulting services through their Bayview Office.

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The lunch concluded with a “Happy Birthday” cake presented to the CFPB staff, since yesterday was the Bureau’s fifth birthday. In that short time, the agency has secured over $11 billion in relief for over 27 million consumers and handled nearly 1 million complaints.

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Would Postal Banking Be Better than Payday Loans?

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

 

Earlier this week, Liana Molina, director of community engagement at the California Reinvestment Coalition, testified at a field hearing held by the Grand Alliance to Save Our Public Postal Service.  The alliance is focused on  “the choice now facing the U.S. Postal Service: Build on the heritage of universal, nationwide service and expand to meet the needs of the hi-tech economy and low-income communities – or continue to shrink with declining service, facility closings and job cuts.”

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Molina’s testimony focused on a proposal for the USPS to complete with fringe, predatory payday, car title, and other high cost lenders by instead offering safe, low-cost financial services.  Her testimony is included below.

Good evening, my name is Liana Molina. I’m the Director of Community Engagement at the California Reinvestment Coalition (CRC). The California Reinvestment Coalition is a statewide, membership based organization working to build a fair and inclusive economy that meets the needs of communities of color, low-income communities, and others who have been marginalized and historically underserved.  We use strategic advocacy that leads banks and other corporations to provide investments and financial services that expand access to housing that is affordable, entrepreneurial opportunities, good jobs, and other tools to create and sustain household and community wealth.

Historically CRC has advocated for greater transparency and accountability of the banking industry, and we’ve pushed banks to grow and strengthen their community reinvestment lending, services and investments in low-income communities across California. Today we continue our work to expand access to fair and affordable banking, credit and other financial services and opportunities for underserved consumers.

I lead CRC’s Stop the Debt Trap campaign to reform high-cost payday, car title and installment lending practices. We are employing a multi-pronged approach that entails legislative and regulatory advocacy at the local, state and federal level. Before I delve into the specific policy reforms we are seeking and how the US Postal Service can play an important and impactful role in the struggle against predatory lending, let me share why we got involved in the fight to end predatory payday lending.

Our efforts against predatory payday lending stem from our work to change and improve the mainstream banking sector.

Did you know that every single payday loan borrower is also a bank customer? A consumer needs to have an active checking account in order to obtain a payday loan, since the loan is secured with a post-dated check which is then deposited by the lender on the consumer’s next pay date.

So these consumers are not entirely unbanked. These are people who likely use their bank accounts for direct deposit of their income and to handle other basic financial transactions, such as paying regular bills. Yet, these consumers cannot borrow a $300 or $500 loan from their bank because the banks do not make small dollar loans that meet the credit needs of their clients. So this is one way the banks are part of the problem.

Additionally, many of the big banks are actually invested in payday loan corporations through extending lines of credit they provide to payday lenders, which enable payday lenders to conduct their business. So while the banks aren’t making affordable small dollar loans directly to their customers, they have major credit agreements with payday lenders who then charge these same customers triple-digit interest rates on short-term loans. Banks involved in financing high-cost, low-quality lending through lines of credit and term loans to payday loan corporations include Wells Fargo, Bank of America, JP Morgan Chase, US Bank and others.

Finally, CRC has prioritized our Stop the Debt Trap campaign to end predatory consumer lending because when we talk about the provision of financial services in low-income communities, many economically disadvantaged neighborhoods do not have access to full service bank branches. Instead, these neighborhoods are saturated with fringe financial entities such as check cashers, pawn shops and payday loan outlets, all of which strip the income and assets of consumers struggling to make ends meet. We also know that payday loan stores are more likely to be located in African-American and Latino neighborhoods than in white neighborhoods.

Given this landscape, there is room for a lot of improvement in how our financial system meets the credit and capital needs of low and moderate-income consumers. While CRC agrees that there is a legitimate need for access to credit, debt trap products like payday, car title and installment loans (which are basically payday loans on steroids) do not help people over the long-term.

Payday Lenders

In California, the interest rate on a two-week, $300 payday loan is 459% APR. It amounts to $15 per $100, or $45 to borrow $255. It may not seem so bad at the face value, and most consumers can afford to pay $45 for a $255 loan. However, payday loans require a balloon payment of the full $300 at the borrower’s next pay date, two-weeks later. Most borrowers do not have $300 to pay off the debt without having to re-borrow. So unless the borrower has an increase in their income or a decrease in their expenses, in 4 out of 5 cases, they will take out another loan in order to meet their basic expenses for the next two weeks. This cycle repeats itself an average of 7-10 times for consumers, and drains Californians of over $578 million in interest and fees, annually.

High-cost car title and installment lending is growing in California. Now that the federal Consumer Financial Protection Bureau is poised to issue rules on payday lending, more payday lenders are moving into these other loan products that are just as dangerous. Our state doesn’t regulate the interest rates on payday loans below $300 or on consumer loans above $2,500. We are seeing more car title loans at interest rates at around 100% APR and longer-term installment loans with interest rates at 200% or higher. For example, one borrower working with us on the campaign paid $6,700 over 24 months for a $2,529 car title loan at 112.47%. It’s outrageous.

CRC and other consumer groups have been advocating for changes to local and state laws to rein in these predatory lending practices for many years, and it has been an uphill battle. One of our greatest challenges is the lack of wide-scale alternatives available on the market. Many of our policy makers accept predatory lending as a necessary evil, because they claim that their constituents need access to these loans, and the banks are not lending.

Do you see where I’m going with this?

This is where the concept of postal banking could really make a tangible difference in providing an accessible, responsible, affordable alternative loan product to consumers. The US Postal Service already provides some financial services, such as money orders, cashing of treasury checks, international paper and electronic money orders and gift cards. There is tremendous potential to expand the products and services offered by the USPS to meet the financial needs of underserved populations. We recognize that moving the postal service into offering consumer loans is a long-term process, not an immediate step. However, given the huge demand for small dollar consumer loans, it is a vision that is worth working toward.

When CRC learned about the Campaign for Postal Banking, we were excited to learn that a national coalition has come together to advocate for the USPS to act immediately to expand and enhance existing products and services. While the creation of small dollar lending and savings programs would necessitate Congressional legislation, the USPS could begin to build on the financial products and services currently offered. For example, the postal service could start cashing payroll checks, it could install surcharge-free ATMs in post office lobbies to enable recipients of public benefits to access their funds without paying fees, and it could introduce bill payment and electronic fund transfer services.

By providing less expensive financial products and services, the USPS could help improve the financial stability of millions of Californians. A postal banking system would not only benefit consumers who do not have access to mainstream financial institutions, it would also provide a sorely needed alternative to the big banks who wrecked our economy with predatory mortgage lending and then exploited tax payers by receiving trillion dollar bailouts.

We know that a public banking option is possible. The United States had a Postal Savings System from 1911-1967, which at its peak held about 10 percent of assets in the entire commercial banking system. Today, 1.5 billion people worldwide receive some financial services through their postal service in countries like the United Kingdom, France, Italy, and Japan. Posts around the world have demonstrated the feasibility of successfully providing financial services, increasing financial inclusion and generating revenue for the postal service.

We believe this is possible in the United States, and it will require our persistent advocacy and campaigning to bring about these types of changes. CRC is optimistic about the current dialogue around postal banking, and we look forward to participating in local, regional and statewide efforts to move this conversation forward. We greatly appreciate the work of A Grand Alliance to Save Our Public Postal Service and the Campaign for Postal Banking.

Thank you for the opportunity to testify.