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

California Reinvestment Coalition Recommendations on Updating the Community Reinvestment Act

Community reinvestment act 2

Fact Sheet: Community Reinvestment Act Recommendations

To truly meet community needs, CRC members believe the CRA should be improved and strengthened. In a recent survey, 100% of members said that the level of CRA activity in their community needed improvement and that there was considerable room for banks to do more.

CRC recommends that CRA be reformed so that:

1. CRA implementation encourages, not discourages, reinvestment in rural areas. California is home to numerous rural reinvestment deserts, where a lack of lending and investment prevents communities from thriving economically. And yet, many of these areas already have bank branches and are included in bank CRA assessment areas. Regulators subject bank CRA activity in these areas to a lower level of scrutiny, as banks are able to denote these areas as subject to only “limited scope” review. For example, Bakersfield, California, has numerous bank branches, and those banks have CRA obligations in the city. However, these same banks are examined for their CRA activity far more closely in other, more urban areas of the state. This creates fierce competition, for example, for housing tax credit deals in urban areas, while rural projects struggle to find financing. Instead, regulators should ensure that the banks with the largest deposits in a given MSA are subject to a full scope review in that MSA.

2. Regulators should encourage banks to develop transparent, multi-year CRA Plans that reflect significant public input and that include measurable goals, such as tying reinvestment activity to a percentage of bank deposits. Banks are supposed to help meet community credit needs. And in many bank merger applications, banks must demonstrate that the merger will provide a community benefit. The public input process is critical to this assessment.

However, community input has been diluted, and is not sufficiently sought and considered under current CRA implementation, as an example, very few mergers will even have public hearings. Mergers most often lead to diminished resources for communities as 1 + 1 rarely equals 2 in terms of reinvestment. That is why a comprehensive review of mergers is so important, complete with strong community input and mitigation of any harm the merger may cause in the form of decreased reinvestment or reduced access to banking services or branches.

Regulators should encourage CRA plans, particularly in the context of mergers that must show a clear public benefit to the community. Strong and meaningful CRA plans reflect community input about community credit needs, motivate banks by setting strong goals for lending, investment and services, and allow communities to work in partnership with banks to ensure that they are treated equitably and fairly by financial institutions. CRA plans are a best practice that have resulted in significant gains for communities in the past few years. Strong CRA plans can help demonstrate that a merger will have a public benefit.

3. Banks should be downgraded for causing, enabling, or financing harm in communities, taking into account discrimination, and equity stripping conduct and transactions that lead to displacement. The CRA calls for an assessment of how well or poorly a bank is meeting community credit needs. This analysis must include an assessment of fair housing and related factors. Regulators should conduct a comprehensive review of a bank’s community impact. Wells Fargo is but the most recent example to demonstrate that simply investing in the community is insufficient- banks must also not cause harm or break the law.

For a regulator to give a bank a passing CRA grade while the bank engages in discriminatory lending would be to endorse discrimination. Further, a high CRA rating for a discriminatory bank could result in consumers being directed to a bank with an inflated CRA rating, only for the bank to potentially overcharge the consumer or deny that person a loan. In this way, regulators would abuse the public’s trust in its ratings.

Bank regulators should consider expensive overdraft programs and excessive reliance on fee revenue generated at the expense of the most economically vulnerable consumers as a basis for downgrading a bank in a CRA service test evaluation. Similarly, banks should be downgraded for financing high cost, predatory lenders, and for contributing to gentrification and displacement. Banks should also suffer CRA rating downgrades as a result of any involvement in the REO to Rental craze, which results in first time homebuyers being outbid by cash investors, tenants being displaced by Wall Street landlords, and neighborhoods losing long term residents as well as racial and income diversity.

4. Encourages banks to open and maintain branches in LMI and rural areas. Bank branches remain a critical part of how banks serve communities, and inequitable distribution of branches must be considered as part of the CRA service test. Critically, regulators cannot allow the industry’s preference for technology to result in fewer branches and shrinking CRA assessment areas, footprints, and obligations in LMI communities. Additionally, many LMI neighborhoods and communities of color not only lack access to bank branches, but also to a wide range of banking products and services, including ATMs.  Regulators should analyze whether banks are meeting the banking needs of all communities in their assessment areas.

Regulators should also consider how banks can better reduce the number of unbanked or underbanked consumers within their assessment areas. Moreover, banks should quantify the extent to which LMI bank customers are able to keep their accounts open and in good standing over time, or if their customers are pushed out of the bank by overdraft fees or other barriers. Low cost bank accounts should be offered and accessible to LMI consumers, including through bank acceptance of municipal identification cards and other accessible forms of ID.

5. Assessment areas should include areas where banks have branches, or where a significant number of their customers and depositors live. Regulation has lagged behind market innovation. Requiring reinvestment only around retail branches makes much less sense today, when internet, credit card, and fintech banks operate nationally but reinvest only in Salt Lake City or another headquarters location.

Assessment areas should be expanded to include areas where a substantial portion of a bank’s depositors and borrowers reside. At the same time, banks should not be allowed to receive additional CRA credit for lending or investing outside of the bank’s CRA assessment area, beyond the accommodation made to banks by regulators during the last CRA Questions and Answers review. This will only lead to a dilution of investment in LMI neighborhoods that are most in need of reinvestment. The primary purpose of the CRA is to serve communities where the bank is doing business, not to encourage reinvestment where it is easiest to do. Banks should not be able to circumvent obligations to serve the communities in their assessment areas. The focus of bank CRA should remain on LMI individuals and communities.

6. CRA examinations should consider and reflect new small business lending data that the CFPB will be overseeing. Small businesses are the lifeblood of our economy, prime job creators, and bulwarks of the community. Yet small business owners benefit from fewer protections than homeowners. HMDA data has been collected for years, and used to inform CRA examinations, without problem or incident. Small business owners should also benefit from a comprehensive and unified lending data collection system.

CRC members strongly support Congress’ charge in Dodd-Frank that §1071 small business lending data be collected in order to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses. Such data collection and dissemination will surely make affordable credit more accessible to all small businesses, and will inform CRA examinations.

A recent CRC survey of our CDFI, community lender and technical assistance provider member organizations revealed that small business clients still face discrimination; are pushed by banks towards higher priced credit cards; are frequently targeted for nonbank credit products (like Merchant Cash Advances), and are in need of greater access to affordable, safe, and transparent credit.

7. Banks serve all segments of the community, including the immigrant community. Banks can and should serve the immigrant community by directly providing loans and investments to immigrants, and by supporting community lenders and other organizations that serve the immigrant community. Immigrant community members have significant unmet credit needs, whether it is a safe place to save money, a loan to buy a house, purchase a car, start a businesses, or pursue a citizenship application.

Banks should ensure that employees represent the diversity of their service areas, and make translation, interpretation and related language access services available to all potential clients. Banks should make loans and investments accessible to all community members, and invest and support community lenders and other organizations that serve the immigrant community.

8. The bank examination process can be improved so that years do not go by after an examination before the pubic rating is released. The regulators should hire additional examiners and provide enhanced training to ensure that there is consistency in the examination process across agencies and examiners. CRC believes that a primary reason behind the delay in the public release of CRA ratings is the propensity of banks to challenge and appeal initial CRA ratings by regulators. This process should be reformed to limit the circumstances in which a bank can challenge a rating, and the public should be given an opportunity to comment on the appeal when a bank invokes this otherwise opaque process. It is of critical importance that regulators set high standards of review.

To make CRA meaningful, regulators have to end the long history of CRA grade inflation so that poor CRA performance will be reflected in CRA ratings. Streamlining the process while lowering the examination bar will only lead to less investment, more harm to communities, and potentially, to greater risk in the US financial system. We saw this happen in the years leading up the financial crisis, when regulatory agencies competed against each other to attract banks to their charters, fueling a regulatory race to the bottom, and leading ultimately to the failure of several savings and loans and the end of the Office of Thrift Supervision.

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

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

Compilation of Payday Loan Legal Settlements

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.

 

CRC is starting to compile payday loan settlements- if we’ve missed any, please send them to us: SCOFFEY AT CALREINVEST.ORG and we’ll post em here.  And, Advance America has its own post about all their settlements. You can read it here:  ADVANCE AMERICA PAYDAY LENDER SETTLEMENTS

State bars internet lender, wins $11.7M settlement over ‘rent-a-tribe’ loans
CashCall Inc., an internet lender accused of hiding behind an American Indian tribe to break state laws, agreed to pay nearly $12 million to settle charges filed by Minnesota’s attorney general.The company, based in California, was also barred from further business in the state, Attorney General Lori Swanson said Thursday. “The company engaged in an elaborate scheme to collect payments far higher than allowed by state law,” Swanson said in announcing the settlement. CashCall must cancel all outstanding loans, pay back consumers and “undo any adverse reporting to the credit bureaus.” August 18, 2016.

Arkansas AG Settles Payday Lending Lawsuit for $750,000  One of the defendants, a South Dakota based company, identified itself as a tribal entity with sovereign immunity. The company, however, was neither owned nor operated by a tribe. The complaint alleged that the South Dakota lender entered an agreement with a California-based company, pursuant to which it would originate payday loans before assigning them to the California company to collect. July 9, 2016.

Courthouse News Service:  $1.6 Million Settlement With Payday Lenders: Nebraska will accept $1.6 million to settle a predatory lending suit against CashCall and Western Sky Financial, which it accused of falsely claiming tribal affiliation to duck lending laws. (May 6, 2016).

Times Free  Press: Chattanooga payday king justified illegal business by giving money to charity  (May 18, 2016)  A used car salesman turned tech entrepreneur who operated an illegal payday lending syndicate from Chattanooga will pay $9 million in fines and restitution, as well as serve 250 hours of community service and three years of probation, after pleading guilty to felony usury in New York. Carey Vaughn Brown, 57, admitted to New York prosecutors that he broke the law from 2001 to 2013 by lending millions of dollars — $50 million to New Yorkers in 2012 alone — with interest rates well in excess of the state’s 25 percent annual percentage rate cap.

New York Touts $3M Payday Loan Settlement:  (May 18, 2016). In its first such action, New York’s top financial watchdog reached a $3 million settlement Wednesday with two debt-buying companies that improperly bought and collected on illegal payday loans.

Vermont AG Enters Largest Settlement With Online Payday Loan Processor  (May 24, 2016)  In the settlement agreement, the company admitted that it processed electronic financial transactions on behalf of approximately 43 separate lenders, in connection with high-interest, small-dollar consumer loans made over the internet. None of those lenders were licensed to make loans in Vermont. Between 2012-2014, however, the company processed approximately $1.7 million in transfers from Vermont residents’ bank accounts.

Payday lender will pay $10 million to settle consumer bureau’s claims  (July 10, 2014) “Ace used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt,” bureau Director Richard Cordray said. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”

California Payday Lending Statistics

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.

payday lender vultures

Payday and Car Title Lending Statistics

Payday Lending is a $135 million net drain on California’s economy each year: Despite industry claims about creating jobs, a 2013 report from the Insight Center for Community Development estimates the payday lending industry subtracts 1,975 jobs from California’s economy each year, and is a net loss to the state economy of over $135 million annually.

Nationally, four out of five payday loans are rolled over or renewed: Countering industry claims about payday loans as being useful for “one-time emergencies,” a study by the CFPB found that 4 out of 5 payday loans are rolled over or renewed within two weeks, adding to concerns about the high-cost “debt traps” created by these loans.

California consumers pay over $507 million in payday loan fees annually and $239 million in car title fees: A new report from the Center for Responsible Lending finds that consumers pay $239,339,250 in fees for car title loans and $507,873,939 in payday loan fees, ranking California as the #2 state for highest amount of fees paid for car title and payday loans.

More than 15,591 Californians had cars repossessed in 2014 because of car title loans: According to the California Department of Business Oversight, the charge-off rate for auto title loans in 2014 was 4.5 percent. (17,633 of 394,510).  At the national level, recent research from the CFPB found that 1 in 5 car title borrowers will have their car repossessed.

Do these facts concern you?  There is a KEY opportunity to weigh in with the Consumer Financial Protection Bureau as it finalizes rules to regulate payday, car title, and installment lenders. Please share your stories and comments here: CFPB comment.

Learn more about payday lending by visiting CRC’s website.