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

New Payday Loan Facts in California

Did you hear that the Consumer Financial Protection Bureau is finalizing rules for high-cost payday, car title, and installment loans?

If you’re curious to know more about these loans, and the impact they have (mostly negative) on Californians and our state economy, then you’ll want to read CRC’s new fact sheet on payday lending in California.

It includes the latest data from the California Department of Business Oversight, as well as research on the negative drag to California’s economy created by payday loans.

california-payday-loan-brochure

 

 

You can download the fact sheet by clicking here.

If you want to learn more about payday loans in California- and the work the California Reinvestment Coalition is doing to take on predatory lending, click here and visit the CRC website.

Thank you for your support of California Reinvestment in 2014

Dear CRC Supporters,

We are writing to thank you for your support during the past year and to ask you to consider supporting CRC’s advocacy in 2015 with a small donation.

Your donation of $25, $50, $75, or more, will power our advocacy on behalf of our members, who are helping people throughout California to buy their first home, set up a matched savings account, open a safe checking account, start a small business, or to live in a home that’s safe and affordable.

To give you an idea of what your donation can do, we’re including a brief recap of the work CRC engaged in during 2014:

1. ATM Fees: In March, CRC released our $19 million ATM fee report, documenting how CalWORKs recipients are losing precious benefit dollars to ATM fees they incur to withdrawal their benefits.  We also sent a letter to regulators (along with 79 of our allies), raising media attention and documenting the many problems the REO to Rental scheme is creating for tenants, first-time homebuyers, and communities.

2. Housing Counselor Survey: In May, CRC’s 10th survey of California housing counselors, which includes 11 stories of homeowners who worked with CRC member Housing and Economic Rights Advocates, was featured on NPR’s Morning Edition. NPR interviewed an Oakland homeowner who faced a number of obstacles in trying to keep her home after the death of her spouse. CRC briefed regulators on the report and survey findings.

3. Payday Lenders: In August, as part of “Shark Week,” CRC and our allies held a rally in front of a San Franciso payday loan store, drawing attention to the harm caused by these loan sharks, and the important opportunity for the CFPB to regulate these loans in 2015.

4. Community Reinvestment Plan: In September, as a result of advocacy by CRC and our members and allies, Banc of California announced a public, five-year community benefit and reinvestment plan as part of its acquisition of 20 Banco Popular branches.

5. Bank Merger: In December, using a Freedom of Information Act request, CRC identified that OneWest bank has already received over $1 billion from the FDIC and expects to receive another $1.4 billion as part of controversial shared loss agreements with the FDIC.  We announced these new findings at a press conference and rally at the bank’s headquarters, and along with our over 50 members and allies, will continue pressing the bank regulators to hold hearings on this proposed Too Big To Fail bank merger.

As you can see, we’ve been busy this year.  If you also believe that banking services should be available to all communities, and that predatory products and services must be eliminated, please consider making a donation to CRC today.

We are a small and nimble organization and your investment allows CRC to amplify the issues faced by our members and their clients to bank regulators, policymakers, the media, and the banks themselves. With your support, CRC members successfully advocate for stronger community reinvestment by the banks and for policies and laws that protect low-income consumers.

Thank you for your support,

The CRC Team

Paulina, Kevin, Liana, Andrea, Sean, Jess, and Divya

How Banks Sell Overdraft: Results of Overdraft Mystery Shopping in Four Key States

Editor’s note: A PDF of this report is available here 

July 2014

A report by:

California Reinvestment Coalition

New Economy Project

Reinvestment Partners

Woodstock Institute

Copyright © 2014

California Reinvestment Coalition; New Economy Project;

Reinvestment Partners; Woodstock Institute

All Rights Reserved.

About the organizations

CRC logo

California Reinvestment Coalition advocates for fair and equal access to banking and other financial services for California’s low–income communities and communities of color. CRC has a membership of over 300 nonprofit organizations and public agencies across the state of California www.calreinvest.org

NEP

New Economy Project (formerly NEDAP) works with community groups to fight for economic justice, and to build a “new economy” based on principles of coop- eration, democracy, equity, social and racial justice, and ecological sustainability.  www.neweconomynyc.org

Reinvestment Partners

Reinvestment Partners advocates for economic justice and opportunity through client services, litigation, community development, research, and advocacy. www.reinvestmentpartners.org

Woodstock Institute

Woodstock Institute is a leading nonprofit research and policy organization in the areas of fair lending, wealth creation, and financial systems reform. www.woodstockinst.org

Executive Summary

Banks reap billions of dollars in revenue each year from abusive overdraft products.  Overdraft products are extremely high-cost, short term loans that banks make to customers who have insufficient funds in their checking accounts to cover a transaction. The exorbitant fees, often $35 for even a very small overdraft, and short repayment terms make the actual cost of credit astronomical, and because overdraft loans are not regulated as credit, they lack many consumer protections. Overdraft, sometimes referred to as “courtesy overdraft,” can be a debt trap that causes great financial hardship for lower income customers, and pushes many out of the banking system.

Banks derive the vast majority of overdraft revenue from a relatively small percentage of struggling customers who repeatedly overdraft, and who are disproportionately lower income or people of color. See Pew Charitable Trusts, “Overdrawn: Persistent Confusion and Concern about Bank Overdraft Practices,” June 2014; Federal Deposit Insurance Corporation, “Checking Account Activity, Account Costs, and Account Closure among Households in Low- and Moderate-Income Neighborhoods,” 2013. In its recent study, Pew found that nonwhites are 83 percent more likely to pay an overdraft fee than whites.

Overdraft products are the biggest fee generator for banks. As reported in the Wall Street Journal, a survey by Moebs Services, Inc. found that financial institutions generated $31.9 billion in overdraft revenue in 2013, while the median fee per overdraft has gone up since 2009. “Overdraft Fees at Banks Hit a High, Despite Curbs,” April 1, 2014. The significant revenue share that banks derive from expensive overdraft fees gives banks an incentive to aggressively market overdraft to customers and to reward employees for successfully pushing overdraft products.

In response to broad concerns about the abusive nature of overdraft products, the Federal Reserve Board enacted certain regulatory changes in 2009, including requiring that bank customers must “opt in” to bank overdraft products that may be triggered by ATM withdrawals or debit card purchases.

Despite the Federal Reserve’s 2009 rule changes, many bank customers are reportedly opting in to expensive courtesy overdraft coverage without their knowledge or understanding. The 2014 Pew report, for example, found that 52 percent of survey respondents who were charged overdraft fees were unaware that they had opted into overdraft coverage, and 68 percent of respondents stated that they would not knowingly opt in to overdraft coverage and would rather have a transaction declined than incur a $35 fee. The Consumer Financial Protection Bureau (CFPB) found a large variation among banks in the rate in which customers opt in to overdraft for ATM and debit card transactions, ranging from single-digit percentages to more than 40 percent. CFPB, “Study of Overdraft Programs,” June 2013.

Overdraft products can be a debt trap that causes great financial hardship for lower income customers, and pushes many out of the banking system.

There are therefore serious questions as to whether certain banks are aggressively marketing opt-in overdraft to generate fees; whether banks are giving potential customers accurate information about the risks of overdraft coverage; and whether bank employees are properly trained or improperly incentivized to sell overdraft coverage to customers. Given these concerns, our four groups – California Reinvestment Coalition, New Economy Project, Reinvestment Partners, and Woodstock Institute undertook this mystery shopping project to investigate how the largest banks in four cities provide information to customers about the cost and risk of overdraft coverage.

For purposes of this investigation and report, we focused on how banks sell their overdraft products – including “opt-in” overdraft for ATM withdrawals and debit card purchases, and other transactions for which a bank charges a fee to allow payment from a checking account without the necessary funds already on deposit. We did not examine “non-sufficient funds” (NSF) fees on bounced checks, electronic transactions or other instances when a bank denies payment on a transaction when there are insufficient funds, and then charges the account holder a fee.

Despite the Federal Reserve’s 2009 rule changes, many bank customers are reportedly opting in to expensive overdraft coverage without their knowledge or understanding.

Mystery shoppers’ conversations with bank representatives reveal persistent misinformation about overdraft – particularly the requirement that customers opt in to the product. Although the report is based on conversations with individual bank representatives, it is clear that, given the pervasiveness of the problem, banks themselves must be held responsible.

Methodology

The project investigated whether large banks provide accurate and full information on overdraft products and services (“overdraft”); whether the information varied based on a person’s race, ethnicity, or gender, or based on neighborhood; and whether the information was provided without undue pressure or steering to costly products.

The groups conducted 64 mystery shopping visits at 39 bank branches in Chicago, Durham, New York City, and Oakland. The four largest banks by deposit size in each city or state (California) were selected, including Bank of America, BB&T, BMO Harris, Capital One, JPMorgan Chase, Citibank,  (Citibank does not authorize overdrafts on ATM or debit point of sale transactions, unlike the other banks that the mystery shoppers visited), SunTrust, Union Bank, and Wells Fargo. (Some banks received shopper visits in more than one city.) Working in pairs, mystery shoppers visited branches of each of the four largest banks in each city four times — making two visits to branches in predominately white neighborhoods, and two visits to branches in predominately non-white neighborhoods. Mystery shoppers conducted visits according to a common protocol and script. The mystery shoppers told bank branch staff that they were comparison-shopping among financial institutions for a checking account and were not prepared to open a checking account at the time of the shopping visit. (See Appendix for training material.)

Key Findings

In all four cities, banks’ explanations of overdraft programs were highly inconsistent, and often unclear and incorrect.

Our mystery shopping yielded the following key findings:

  • In all four cities, banks’ explanations of overdraft programs were highly inconsistent, and often unclear and incorrect. Bank employees’ explanations of the mechanics and costs of overdraft products and services differed from bank to bank, branch to branch, and employee to employee. The inconsistent and erroneous information bank personnel provided to mystery shoppers raises concerns about banks’ training of staff and sales practices and suggest that banks may not be giving people the information they need to understand overdraft programs and make informed choices.
  • Bank employees often did not clearly or correctly explain how overdraft fees are triggered. This was true at branches in both white and non-white neighborhoods, and for white and non-white mystery shoppers. The misinformation made it difficult or impossible for shoppers to understand the real costs of overdraft and make informed decisions.
  • Bank employees frequently did not explain the opt-in requirement for ATM and debit courtesy overdraft, and led people to believe that it was an automatic account feature, raising serious concerns about whether the large banks are complying with federal regulations.
  • In two of the cities, bank branches visited in predominantly non- white neighborhoods had limited staff availability and long wait times, in stark contrast to well-staffed branches in predominantly white neighborhoods. The poor service clearly affected the quality of assistance provided to customers in non-white neighborhoods.

Recommendations

Given the abusive nature of overdraft, and based on findings from our mystery shopping, our four groups urge the CFPB and federal banking regulators to exercise their jurisdiction to:

  • Prohibit overdraft fees on all ATM withdrawals and debit card transactions. Instead, banks should simply decline transactions if there are insufficient funds in the account. Although prohibiting overdraft on ATM withdrawals and debit card transactions would not completely resolve the problem of high overdraft/NSF fees on other transaction types, it would end the worst type of fee-gouging on overdraft coverage. Several banks have already instituted this straightforward solution.
  • Limit the fees a bank may charge for overdrafts to an amount commensurate with the actual cost of the transaction to the bank and  proportional to the actual amount overdrawn.
  • Prohibit banks from reordering transactions to maximize overdraft fees. Require banks to process ATM and debit transactions based on when they clear, and to process checks, ACH transfers, and recurring bill payments in order from smallest to highest to minimize the amount of overdrafts.

At a minimum, the CFPB and regulators should:

  • Prohibit banks from providing financial incentives to branch or bank employees for the sale of overdraft products to customers.
  • Create a uniform standard for how banks should verbally describe overdraft products and fees, including clear explanations of all potential overdraft fees (regardless of whether the consumer inquires specifically about overdraft) and ways that overdraft policies and fees differ by type of transaction and overdraft product or service.
  • Require training of bank employees on the verbal explanation of overdraft standards and conduct periodic reviews of training and  compliance.
  • Limit the number of times a financial institution may impose overdraft charges to once a month, or a maximum of six charges in a 12-month period, whichever comes first.

California Reinvestment Coalition: Oakland, California Bank Branches

The California Reinvestment Coalition (CRC) consists of 300 non-profit organizations that serve low income communities and communities of color throughout California. CRC members provide critical services including housing counseling, affordable housing development, entrepreneur support, small business financing, credit counseling and asset building programs. CRC advocates on their behalf and on behalf of the families and businesses they serve for access to affordable financial services that meet their needs, including loans, investment and retail services.

CRC does this by working directly with banks to develop programs and by supporting legislative and regulatory reform of the financial services industry.

Method

CRC sent mystery shoppers to the four largest banks in California by deposits: Bank of America, Chase, Wells Fargo and Union Bank. Paired shoppers, one white and one Latino, visited two branches of each bank in Oakland, California, one in a predominantly white community and one in a community that is predominantly people of color. Mystery shoppers visited each bank four times, for a total of 16 visits. Five of the six shoppers have bachelor’s degrees, and two also have a graduate degree.

Key findings

  1. Representatives at all of the banks tested gave lengthy but confusing and often incomplete explanations of their bank’s overdraft policies and options. A few bank representatives also gave wrong or misleading information.

The most commonly reported complaint from shoppers was that the banks’ explanations about overdraft options were confusing. One shopper put it most clearly: “There was too much information to keep up. I got lost on all the options available.” A few bank representatives even admitted their own confusion.

The issues that banks had the most difficulty explaining clearly included:

  • Which transaction types would be declined without a fee;
  • Which declined transactions would incur a returned item fee or an overdraft fee if the account had insufficient funds;
  • Under what conditions a customer could deposit money to avoid overdrafts caused by transactions made earlier in the day; and
  • The bank’s discretion to pay transactions and charge fees regardless of the shopper’s choice of overdraft settings.

Several bank employees gave mystery shoppers incomplete or wrong information, for example, suggesting they could avoid overdraft fees by depositing money after the transaction. A Bank of America representative stated wrongly that the shopper could avoid an overdraft fee by making a deposit within 24 hours of the transaction. A Union Bank bank representative told a mystery shopper they could overdraw their account without an overdraft charge, as long as the shopper got to the bank on the same day, or by Monday if the transaction was done on a Saturday, to make a deposit that covered the amount. Representatives of Chase and Bank of America told mystery shoppers they could avoid overdraft fees by depositing money by the end of the business day, without any further clarification of when that bank’s business day ends.

Several banks indicated that their institution had discretion to allow overdrafts, also giving confusing and inaccurate information. They told mystery shoppers that a customer’s credit history, relationship with the bank, or overdraft history would determine the bank’s decision to allow an overdraft or charge a fee. One banker told a shopper that “even if all of your overdraft protection was maxed out,” the bank may still approve an overdraft transaction, and that banks used “matrices” and “an algorithm” to determine whether or not such a transaction would go through.

None of the bank representatives informed mystery shoppers that debit card transactions were the most likely to incur overdraft fees if overdraft was activated.

Two bank representatives presented overdraft using outright misleading and inaccurate terms such as “emergency cash” and “loan.” Overdraft, however, is not regulated as credit and is therefore not subject to truth in lending and other consumer protection laws. Two bank employees also used identifiably aggressive sales tactics. One Wells Fargo bank representative told a mystery shopper that overdraft was “like a source of emergency cash.” A Chase branch employee suggested to a shopper that overdraft was a way to make emergency purchases.

  1. Most banks did not present any benefits to not opting into overdraft or that “opting out” was the default setting for new accounts.

Most bank representatives never mentioned to mystery shoppers that new accounts are automatically set not to allow transactions that would cause a negative balance and overdraft fee. Bank representatives informed shoppers in only five of the 16 visits that their banks would not charge a fee for debit card transactions that are declined to avoid overdrafts. None of the bank representatives informed mystery shoppers that debit card transactions were the most likely to incur overdraft fees if overdraft was activated.

In most cases, bank representatives neglected to inform mystery shoppers that they could avoid overdrafts and related fees on their accounts by doing nothing, i.e., not agreeing to allow “courtesy overdraft” or establish a linked account. Most bank representatives presented shoppers, either exclusively or primarily, with the option of electing “courtesy overdraft” (with a fee in the $35 range) or “overdraft protection” through transfer from linked accounts (with a fee in the $10 range). One bank representative stated that the most common fees besides monthly service fees were overdraft fees, “but these could be avoided if I linked to savings and met minimum requirements.”

  1. Most bankers suggested that overdraft protection would be the best way to avoid fees and overstated the cost of declined transactions.

All but one bank representative volunteered information about overdraft when shoppers expressed concern about account fees. However, most of the bank representatives presented overdraft protection as the best way to avoid fees, including insufficient funds fees for declined transactions and high courtesy overdraft fees. Most bank representatives also mentioned the option not to allow overdrafts at all, but this was usually done in passing; most of the conversations were dominated by the comparison between “courtesy overdraft” and “overdraft protection,” without comparable time discussing the cost of not opting in to overdraft at all.

In all but two visits, bank representatives discussed the high cost of fees to decline transactions generally and in cautionary terms, without specifying that debit card denials would not incur fees. (This even occurred at all Bank of America branches where the policy is to decline, without fees, all debit card point of sale transactions that could result in an overdraft.) The cost of non-sufficient funds (NSF) fees and “courtesy overdraft” fees were conflated and negatively compared to the cost of “overdraft protection” transfer fees.

As a result, mystery shoppers reported that the functional comparison was whether to choose “the $33 fees” or “the $10 fees,” in other words, to link to a savings account and pay the relatively lower transfer fee, or not to link and face a high fee for either NSF or “courtesy overdraft.” One shopper reported understanding that if he had insufficient funds, Wells Fargo would either deny or pay transactions, but that he would face a “$35 fee no matter what,” so the best course would be to set up overdraft protection with a linked account and pay the relatively lower transfer fees.

In most cases, bank representatives neglected to inform mystery shoppers that they could avoid overdrafts and related fees on their accounts by doing nothing.

  1. Bank representatives in branches serving white communities characterized overdrafts more negatively than bankers in branches serving communities of color.

In all branches, bank representatives tended to pitch overdraft as a prudent practice, especially the overdraft protection option. However, mystery shoppers agreed during their debriefing that bank representatives in branches serving predominantly white communities tended to characterize overdrafts more negatively than bank representatives in branches serving communities of color. Mystery shoppers reported that in branches serving white communities, bank representatives compared linked transfer fees as more cost-effective than “courtesy overdraft” fees and NSF fees, should they occur. They reported that in branches serving communities of color, bank representatives presented overdraft and NSF fees as standard and a good practice to ensure bills would be paid, such that the best choice was to link to a savings account and pay the relatively lower cost.

Conclusions

  • Bank representatives’ confused and complicated explanations about overdraft options and rules, combined with their commonly-offered advice that opting in to overdraft protection was the best way to avoid fees, undermine any clear written materials that the banks might provide. Mystery shoppers came away from their bank branch visits without a clear or accurate understanding of the costs or alleged benefits of overdraft options.
  • The rules that determine whether a transaction is paid or declined, and whether a bank will charge a fee in either case, are especially confusing. Mystery shoppers did not understand which transactions the banks would always pay, regardless of the account’s overdraft setting, and which they would decline with a fee, depending on the overdraft setting. As a result, they could not estimate their likely costs based on the options presented. Shoppers would have benefited from a realistic comparison of how banks would treat the most common transaction types, if they were either to decline or opt-in to overdraft.

New Economy Project: New York City, New York Bank Branches

New Economy Project works with community groups to fight for economic justice, and to build a “new economy” based on principles of cooperation, democracy, equity, social and racial justice, and ecological sustainability. Founded in 1995, the organization (formerly known as NEDAP) has led efforts in New York City to challenge discriminatory economic practices that harm communities of color and perpetuate inequality and poverty.

New Economy Project has provided legal support, technical assistance, and training to hundreds of community groups, and coordinated numerous effective coalitions for change. The organization also provides extensive legal assistance and representation to low-income New Yorkers, on a wide range of financial justice matters.

Method

New Economy Project’s mystery shoppers visited the four largest retail banks in New York City, measured by deposits: Bank of America, Capital One, Chase, and Citibank. Eight mystery shoppers made 16 visits to bank branches, dividing their visits between branches in predominantly white and non-white neighborhoods.

The white neighborhoods where mystery shoppers visited banks were the Upper East Side, Manhattan; the Upper West Side and West Village, in Manhattan, and Carroll Gardens, Brooklyn. Predominantly non-white neighborhoods where mystery shoppers visited banks were East Harlem and Washington Heights, in Manhattan; Bedford-Stuyvesant and Flatbush, Brooklyn; and Melrose, Bronx.

The mystery shoppers included seven volunteer graduate students and one New Economy Project staff member. Six of the mystery shoppers were women and two were men. Four of the mystery shoppers present as white, and four as people of color.

 Key Findings & Conclusions

  1. Most bank employees presented overdraft as an automatic account feature, rather than as an optional product that, by law, the customer must opt into.

Bank representatives did not fully or accurately explain the optional nature of courtesy overdraft, leading mystery shoppers to believe that it was an automatic feature of the account. In fact, at 12 out of 16 (75 percent) of the bank branches visited by mystery shoppers, bank representatives initially presented courtesy overdraft as an automatic account feature. Using words such as “feature” and “benefit,” and describing the overdraft fee as the “cost of overdrawing the account,” these bank representatives initially depicted overdraft as part of the basic account terms, or as an automatic feature when responding to questions from mystery shoppers.

Most bank employees presented overdraft as an automatic account feature, rather than as an optional product that, by law, the customer must opt into.

Bank representatives at nine of the 16 branches visited (56 percent) maintained that courtesy overdraft was an automatic account feature, even after mystery shoppers asked specific questions about how to avoid overdraft fees. When mystery shoppers asked how to avoid overdraft charges, six of the nine bank representatives suggested that they use budgeting, mobile banking apps, or account balance alert systems available through the bank. In no instance did a bank representative disclose that the mystery shopper could simply avoid overdraft by choosing not to opt in.

Bank representatives improperly described overdraft as an automatic account feature, at six of the eight Bank of America and Chase branches visited. Capital One employees did disclose in all four visits that overdraft was an opt-in feature, but only after multiple follow-up questions from mystery shoppers. In three of the visits to Capital One, bank representatives made only partial disclosures — telling shoppers they could “opt in or opt out,” and told one shopper that she could sign a document “waiving her right” to overdraft.

In no instance did a bank representative disclose that the mystery shopper could simply avoid overdraft by choosing not to opt in.

New York City mystery shoppers, who were briefed about different types of overdraft before conducting their visits and are all graduate- or post-graduate level students, were nonetheless confused by the

information they received at the bank branches. That banks might have accurate written material on overdraft does not mitigate the confusing and inaccurate information that banks are providing. In fact, in more than one in four visits, mystery shoppers reported that they did not understand from their conversations with bank representatives how to avoid enrolling in overdraft. Only one third of shoppers understood from the bank representatives that “doing nothing” would be sufficient to opt out. Bank representatives’ misleading descriptions of overdraft were not merely confusing; they may also reveal practices that violate federal Regulation E, which governs overdraft opt-in requirements.

  1. Bank branches in communities predominantly of color were generally understaffed compared to branches in predominantly white neighborhoods, leading to long wait times and shorter consultations with bank staff, and making it more difficult to get basic account information.

Crowded banks and understaffing in neighborhoods of color posed a barrier to getting basic account information in five of the eight visits (63 percent). At two of the branches, mystery shoppers waited for more than an hour to speak with a bank representative, and only one bank representative was available actually to meet because of the long line of people waiting. At a third branch, the bank was so overwhelmed with customers that the mystery shopper was told they could meet only briefly with the staff member at the public welcome kiosk. None of the mystery shoppers who visited branches in predominantly white neighborhoods encountered inadequate staffing, long lines, or poor service.

These contrasting experiences raise important questions about the banks’ allocation of resources between branches in white and non-white neighborhood Already there is a documented and glaring absence of bank branches in neighborhoods of color. That people receive inadequate service and misleading information from banks that do have branches in neighborhoods of color raises further concerns about the lack of access to sound and affordable banking services in these neighborhoods.

Reinvestment Partners: Durham, North Carolina Bank Branches

Reinvestment Partners is a nonprofit advocacy agency whose mission is to advocate for economic justice and opportunity. The agency works at the local, regional and national levels. We conduct community economic development regionally and provide direct client services including legal assistance, housing counseling, job training and tax assistance. These activities inform our research and advocacy in the financial sector.

Method

Reinvestment Partners followed the collaborative investigation protocol to conduct mystery shopping at the four largest financial institutions by deposit size, in Durham, North Carolina: BB&T, Bank of America, Sun Trust Bank, and Wells Fargo Bank. For each bank, paired shoppers were sent to a branch in a predominately non-white and predominately white census tract.  Shoppers were paired by race (black and white), and by gender (male/male, female/female). The shoppers had varying educational levels including a college freshman and professionals with college degrees. There were 16 individual tests of eight branches among these four banks.

Summary of Findings

Each mystery shopper reported on how the banks they visited explained overdraft programs, fees and rules. Here are the summary responses to four key questions:

  1. Did the bank representative talk about different types of overdraft?

–    Eleven shoppers reported that the bank representative did not discuss different types of overdraft.

–    Five shoppers reported the bank did discuss different types of overdraft.

–    These inconsistencies occurred across banks and branches visited.

–    All of the shoppers reported that the banks did not detail the difference between ATM transactions and debit card transactions as it relates to how and whether overdraft protection applied.

Banks’ explanations of how overdraft programs work and their costs differed from bank to bank, branch to branch and among bank representatives.

  1. Based on the banker’s description of the bank’s policies, does the bank automatically provide a certain type of overdraft service?

–    Three shoppers reported that bank representatives said overdraft came automatically with the account.

–    Five shoppers reported that the bank representative did not discuss whether the bank automatically provided a certain type of overdraft.

–    Eight shoppers reported that the bank said that one had to opt into and sign up for overdraft.

–    These inconsistencies held across banks and branches.

  1. If the customer does not want to have any form of overdraft, what would he or she have to do to make sure the account did not include it?

–    Eight shoppers stated they did not know how to avoid overdraft products.

–    Six shoppers reported, “Nothing, accounts automatically come without any form of overdraft.”

–    Two shoppers reported that you had to opt out if you did not want overdraft.

  1. Were written materials offered to you?

–    In one mystery shopping visit, nothing was provided and the bank referred the mystery shopper to a website.

–    In four mystery shopping visits, bank representatives provided only a business card.

–    In three mystery shopping visits, banks provided brochures on accounts, but nothing on overdraft programs.

–    In eight instances, material on accounts and how overdraft programs and fees worked were provided.

Reinvestment Partners found that mystery shoppers received inconsistent information and marketing material across the board, regardless of race, gender or branch location.

Bank representatives did not affirmatively explain the opt-in requirement for overdraft programs, in half of the mystery shopping visits.

Conclusions

  • Banks’ explanations of how overdraft programs work and their costs differed from bank to bank, branch to branch and among bank representatives. Banks often were unclear or incorrect in their explanations of how overdraft programs work and fees are incurred.
  • Bank representatives did not affirmatively explain the opt-in requirement for overdraft programs, in half of the mystery shopping visits. They did not consistently provide written material on overdraft program rules and costs.
  • Banks left mystery shoppers of all backgrounds confused about overdraft. Mystery shoppers experienced differential treatment by race in three instances, reflecting a pattern of inconsistency among banks in how they explain products and provide written information.

Woodstock Institute: Bank Branches in Chicago, Illinois

Woodstock Institute is a leading nonprofit research and policy organization in the areas of fair lending, wealth creation, and financial systems reform. Woodstock Institute works locally (in the Chicago region and in Illinois) and nationally to create a financial system in which lower-wealth persons and communities of color can safely borrow, save, and build wealth so that they can achieve economic security and community prosperity. We conduct research on financial products and practices, promote effective state and federal policies, convene a coalition of community investment stakeholders working to improve access to credit, and help people use our work to understand the issues and develop and implement solutions.

Method

Woodstock Institute conducted mystery shopping at four of the largest banks by deposit size in Chicago: Bank of America, BMO Harris, Chase, and Citibank, during March and April of 2014 to examine how banks explain and market overdraft products and services associated with checking accounts. Following the multi-state partners’ protocol and shopper script, an African American male shopper and a white female shopper visited one branch of each of the four banks located on the north side of the city in predominantly white areas including Lincoln Park and Logan Square, while an African American female shopper and a white male shopper visited one branch of each of the four banks located on either the south side or west side of the city in predominantly non-white areas including West Garfield Park, Near West Side, and Armour Square. The shoppers had various education levels, including one with some postsecondary education, two with college degrees, and one with a master’s degree.

Key Findings

  1. Banks provided consistent written material.

In general, the Chicago mystery shoppers received similar material from each bank branch, such as a brochure, booklet, or handout with information on the basic checking account features and costs. The written material included brief, but basic, disclosures on overdraft protection fees and the costs of optional overdraft for ATM and debit cards. One bank also provided all four shoppers with two brochures that contained more detail on overdraft services and costs. One bank gave one shopper a brochure focused solely on overdraft.

None of the four visited banks had staff who consistently explained overdraft products in the same way that overdraft was presented in the bank’s written materials.

  1. Verbal explanations varied by banker, by branch, and by bank.

Mystery shoppers inquired about the banks’ basic checking accounts and associated costs and relied on the verbal explanations provided by bank staff to understand how overdraft services and products work.

In half of the shopping visits (eight of 16), the bank representative did not address overdraft until shoppers specifically asked about check and debit transactions. In three of the visits, the bank representative did not discuss overdraft until the shopper directly asked about overdraft policies. None of the four visited banks had staff who consistently explained overdraft products in the same way that overdraft was presented in the bank’s written materials or in the same way as other bank representatives or other branches of the same bank. The explanations given varied from banker to banker, from branch to branch, and from bank to bank. At least one mystery shopper at each bank came away from the shopping visit with an understanding of the bank’s overdraft products and services that differed from the understanding of the other shoppers at the same bank. For example:

  • One bank told a mystery shopper that she would be automatically enrolled in overdraft protection if she had a checking account and another account at the bank, while the bank’s written materials clearly state that the customer must enroll.
  • One bank told two shoppers that the bank would always process checks even if there were insufficient funds, while the same bank told another shopper that the bank never processes checks when there are insufficient funds. Regarding overdraft fees, the bank told one shopper that the fee was $10 on top of a $35 overdraft fee for a total of $45, while the same bank told the rest of the shoppers that overdraft protection cost $10 total.
  • One bank gave clear explanations to shoppers about not processing ATM or debit transactions when there are insufficient funds, but gave different and confusing explanations about overdraft protection to cover checks or reoccurring bill payments, telling one shopper that overdraft charges would apply even when the customer has overdraft protection.
  • One bank told two shoppers that the bank never allows debit and ATM transactions to go through if it would result in an overdrawn account, while the same bank told two other shoppers that overdraft is allowed on ATM and debit transactions, but did not make it clear whether this was an opt-in or automatic feature or whether overdraft applied to all transactions or only to checks.

If this is happening frequently at the largest banks in multiple regions throughout the country, it is probably happening at many other banks of all sizes and in all regions.

  1. There was a lack of clarity on opt-in for ATM/debit vs. automatic overdraft for checks/payments, and more clarity on costs.

The majority of shoppers understood from the bankers’ explanations that there was a difference between ATM and debit card overdraft and overdraft protection that applies to checks and reoccurring payments. Nevertheless, shoppers did not clearly understand how these overdraft products differed, including whether a customer must opt-in for ATM/ debit overdraft, whether overdraft fees applied to checks and recurring bill payments even if the customer does not opt in to ATM/debit overdraft, and whether enrollment in an overdraft protection program was automatic.

In far too many cases, bank representatives’ verbal explanations of overdraft products were inaccurate, inconsistent, and confusing.

Shoppers did come away with a clear understanding of the different costs associated with overdraft services. They understood that the bank would charge the customer $34 or $35 for opt-in overdraft, while the bank would charge $10 for an overdraft protection transfer fee. When discussing the line of credit overdraft protection option, bankers mentioned the potential for double-digit interest rate charges in only two of the 16 shopper visits. In almost all cases, bankers marketed overdraft protection fees as a much less expensive option than ATM/ debit overdraft charges. In only one case did a banker tell the shopper that overdraft protection could also be expensive because of fees and that interest might be charged when using a line of credit.

  1. There was a general lack of clarity on how to avoid overdraft fees.

The biggest push or “sell” by bank staff was their suggestion to mystery shoppers that customers should use the bank’s online, phone, and mobile banking services to avoid overdraft fees by tracking their balances and using email or text alerts for when their balance dips below a certain number. It does not appear that bank staff told shoppers that they could avoid overdraft fees by “doing nothing” or by not opting in to ATM/debit overdraft.

Conclusions

  • In far too many cases, bank representatives’ verbal explanations of overdraft products were inaccurate, inconsistent, and confusing.
  • If this is happening frequently at the largest banks in multiple regions throughout the country, it is probably happening at many other banks of all sizes and in all regions.
  • Banks’ provision of accurate written materials that comply with Regulation E requirements regarding overdraft is not sufficient to prevent consumer confusion when bankers also give inaccurate, inconsistent, and confusing verbal information.
  • The level of confusion experienced among even well-educated mystery shoppers raises serious questions as to how less well-educated customers can comparison shop or make informed decisions about overdraft features associated with checking accounts.
  • Improved regulatory oversight and bank staff training are needed to ensure that consumers can obtain accurate information and comparison shop for overdraft products and services associated with checking accounts.

APPENDIX:  Goals, Methodology & Training

Goal: The goal of our mystery shopping was to investigate how banks present overdraft products and their cost to prospective new customers (Note: As of 2010, debit cards were the most popular type of payment among consumers, even more than cash. Consumers made an average of 22.7 debit card and 21.1 cash payments in a typical month, accounting for about three‐fifths of all consumer payments in a typical month (59.7 percent). The next most popular payment instruments were credit cards (13.3 payments) and checks (7.7 payments). All other payment instruments were used an aver- age of 8.5 payments per month. The 2010 Survey of Consumer Payment Choice, Federal Reserve Bank of Boston, 2010 (Kevin Foster, Scott Schuh, and Hanbing Zhang).

The main questions we posed in our mystery shopping were:

  1. Do branch staff talk about overdraft with prospective customers?
  1. What costs associated with overdraft do branch staff discuss with prospective customers?
  • How are overdraft services (in the form of courtesy overdraft or linked to a savings or line of credit) described?

Do they lead customers to believe that overdraft coverage is:

  • an add-on service that must be opted into?
  • something that is by default built-in to the account or set up such that the customer would need to opt-out if they didn’t want these services?
  • a service whose cost can be limited by opting into the “overdraft protection” service which links to a savings or other account and costs a “transfer fee”?
  1. Is overdraft service (in any form) described as good for the customer, such as a desirable service the customer should want, or cautiously, as a potential cost to the customer that she could avoid?
  1. What language is used to describe overdraft services? (i.e., “good for when you don’t have money for emergencies”, “avoids embarrassment”, “good as a last resort”)
  1. Do branch staff in branches located in predominantly white communities talk about overdraft differently than staff in branches located in communities that predominantly of color?
  1. Do branch staff talk about overdraft differently with prospective customers that are white than with prospective customers of color?

Methodology

We conducted mystery shopping at the four banks with the most deposits in our respective state. For each bank, we selected two branches: one in a community of color and one in a predominantly white community. White neighborhoods were defined as census tracts in which the population was at least 80 percent white, and non-white neighborhoods were defined as census tracts in which the population was at least 80 percent non-white. Two shoppers visited each branch: one shopper who is read by others as a person of color, and one shopper read as a white person. The mystery shoppers were directed to visit branches on separate days. Each group conducted 16 shopping visits total.

General Guide to Overdraft Options

Each of the four organizations reviewed a general guide to overdraft with the mystery shoppers, and directed them to review each bank’s specific policies. Terms covered included:

Default – Transactions that will result in a negative balance are rejected at the point of sale, meaning no fee but also no purchase. Bounced checks and recurring automatic payments could still cause a fee, usually around $25 to $35.

Opt in – overdraft coverage – The bank can choose to process transactions with insufficient funds, but charge an overdraft fee for the convenience, meaning your debit card won’t be declined at the register, but you will face a hefty fine, usually around $25 to $35.

Opt in – overdraft protection -The bank will automatically transfer funds over from a linked account (usually savings) to cover a transaction. A fee still applies, but it’s usually much lower (about $10-$12 per instance)

Mystery Shopping Questions

Mystery shoppers were directed to:

  1. Walk into the assigned branch and ask for help from branch staff (not a teller). Bring a small notepad or something you can take notes with. Say that you are looking for information about a new account. Say, “I’d like to sit down with someone who can tell me about your accounts.”
  1. Ask for and take the person’s card. Tell the person you are looking for a basic checking account. Ask how much it will cost you. You can say, “I’m interested in a basic checking account. Which account do you recommend? What fees does it charge?” Take notes of the different costs and fees they mention and take any written material they offer.
  • If the person mentions “overdraft,” find out how it works and how much it costs. For example, you can say, “How does that work? How much does it cost?”

Ask as many questions as you need to until you feel you understand how overdraft works at that bank. Move on to the next question only when you feel you have received all the information the banker has to give you.

  • If you have talked about overdraft – skip to question #6. If you have not yet talked about overdraft, ask question #3.
  1. Ask about unexpected fees that you might have to pay. For example, you can say, “I hate unexpected fees. I recently had to pay a fee I did not expect and because I did not enough money in the account and I went negative. Are there any other fees I should know about?”
  • If the person mentions “overdraft,” find out how it works and how much it costs. For example, you can say, “How does that work? How much does it cost?”

Ask as many questions as you need to until you feel you understand how overdraft works at that bank. Move on to the next question only when you feel you have received all the information the banker has to give you.

  • If you have talked about overdraft – skip to question #6. If you have not yet talked about overdraft, ask question #4.
  1. Ask, “What will the bank do if my landlord tries to cash my rent check or I use my debit card and I don’t have enough in my account?” (Be sure to mention both things.)

The banker can talk about many things in response to this question so pay close attention to and takes notes about all the different things the bank can do in this situation.

  • If the person mentions “overdraft,” find out how it works and how much it costs. For example, you can say, “How does that work? How much does it cost?”

Ask as many questions as you need to until you feel you understand how overdraft works at that bank. Move on to the next question only when you feel you have received all the information the banker has to give you.

  • If you have talked about overdraft – skip to question #6. If you have not yet talked about overdraft, ask question #5.
  1. If by now the person still has not mentioned overdraft, ask, “What is the bank’s overdraft policy?”

Ask as many questions as you need to until you feel you understand how overdraft works at that bank. Move on to the next question only when you feel you have received all the information the banker has to give you.

  1. Ask how you can avoid paying fees as much as possible. For example, you can say, “How can I avoid any of these fees we’ve talked about?”
  1. Thank the person for their help. Ask if there is anything else you should know before you leave.
  1. If under pressure to open an account on the spot, indicate you are not ready to open an account today because you still want to check out other banks.

Community leaders protest sale of 20 local Banco Popular Branches in Los Angeles

Banc of California Press Conference Picture

Editor’s note: On September 4, 2014, Banc of California announced a new, public Community Benefit Plan.  Read more details about the plan here: CRC Announces Support for Community Benefit Plan by Banc of California as Part of Banco Popular Branch Acquisition

Earlier this week, prominent local Los Angeles leaders gathered at a downtown Banco Popular and held a press conference, urging a bank regulator to postpone the sale of the 20 branches until more information is given to the community about the acquisition. Banc of California, headquartered in Irvine, is trying to buy 20 Banco Popular branches which are located in Los Angeles and Orange counties.

In its application to buy the branches, Banc of California said that it would eliminate three checking account features at Banco Popular, including cash incentives for opening new accounts, interest rate bonuses on savings when customers maintain their checking accounts, and a debit card reward program.  Community advocates criticized the proposed cuts, saying that these features help people to open and maintain checking accounts, which can be the first step in building a financial history.

Community leaders are deeply concerned that Banc of California has not provided much detail in its community reinvestment activities since its last CRA exam, which examined the bank’s activities from January 2010 to December 2011 and earned the bank a “satisfactory” rating.  Since that time, the bank has grown considerably, and given its larger size, the bank’s next Community Reinvestment Act will be more extensive. Despite the nearly 2 ½ years that have passed since that exam, the bank did not provide much information in its acquisition application.  The bank noted a recent investment in a Community Development Financial Institution as well as the fact that bank staff volunteer with local nonprofits.

The Office of the Comptroller of the Currency is the bank regulator that will decide whether or not to approve the bank’s acquisition application.

Paulina Gonzalez, executive director of the California Reinvestment Coalition, an umbrella organization with over 300 organizational members throughout the state, explains: “While other large banks develop their CRA plans with input from the community, Banc of California has not. While other large banks make their community reinvestment goals public, Banc of California has not. The FDIC and the Federal Reserve have both required this type of transparency in recent bank mergers and acquisitions, and we expect no less from the Office of the Comptroller of the Currency.”

The comment period for the public to weigh in on the bank’s acquisition was recently extended by the Office of the Comptroller of the Currency (bank regulator) to August 19th.  The comment period was extended because the bank originally published its announcement in the Orange County Register and New York Times.  The California Reinvestment Coalition pointed out to regulators that current Banco Popular customers may have missed the notice.  The new notice was published in La Opiniónand Los Angeles Times.

The California Reinvestment Coalition, an umbrella coalition of over 300 organizations throughout California, is urging the Office of the Comptroller of the Currency to postpone or deny Banc of California’s application until the Banc is more transparent with the community.

Picture from Press Conference: Banco Popular Protest

Picture of 20 branches to be acquired: 20 Branches.

Letter from California Reinvestment Coalition to Bank Regulator, opposing merger: CRC letter

The Banc of California Acquisition application can be downloaded here: Banc of California application

If you’re interested in learning more about the Community Reinvestment Act, read this article:

The Community Reinvestment Act: A Law That Works

If you’d like to learn more about this recent proposed acquisition, these articles give more context.  Please note, some of the American Banker articles require a subscription to view.

Communities Deserve Transparency in Bank M&A In this Op-Ed, Paulina Gonzalez, executive director of the California Reinvestment Coalition, explains why CRC is opposing Banc of California’s proposed acquisition of 20 Banco Popular branches. Gonzalez cites a lack of CRA transparency and questions how the  Office of the Comptroller of the Currency can review the proposed acquisition when Banc of California has provided few details on bank activities that would qualify for credit under the Community Reinvestment Act. BankThink.July 24, 2014.

East L.A.’s Pan American Bank gets $6-million bailout from other banks In this article about 16 community and regional banks investing in Pan American bank, opposition to Banc of California’s proposed acquisition of 20 Banco Popular branches is cited. E.Scott Reckard.Los Angeles Times. July 23, 2014.

Fusión bancaria podría eliminar programas para latinos Prominent Los Angeles community leaders gathered at a local Banco Popular branch to speak out about the lack of transparency in Banc of California’s community reinvestment plans. Araceli Martínez Ortega.La  La Opinión. July 22, 2014.

Banc of California expansion opposed by advocates for minorities, low-income CRC’s concerns about Banc of California’s lack of a public Community Reinvestment Act plan are cited in this article. Paulina Gonzalez, executive director at CRC, explains the importance of transparency in building trust with customers. Josie Huang. Southern California Public Radio. July 22, 2014.

Advocacy Group Secures Review of California Branch Deal When Banc of California announced its intention to acquire 20 Banco Popular branches, it published notice in theOrange County Register and the New York Times. In CRC’s letter to the OCC opposing the acquisition until Banc of California is more transparent in its plan for the branches and community, CRC members expressed concern that current Banco Popular customers may not have seen the notice. This article explains that the Office of the Comptroller of the Currency required Banc of California to re-publish the notice in local media, including the Los Angeles Times and La Opinión. The OCC also extended the comment period on the proposed acquisition 30 days, until August 19th. Chris Cumming. American Banker. July 18, 2014.

Banc of California, Advocacy Group Spar over CRA Plan CRC’s opposition to Banc of California purchasing 20 Banco Popular branchs is cited in this article. Paulina Gonzalez is quoted about the bank lacking a public community reinvestment plan. Chris Cumming.American Banker. July 17, 2014.

Banc of California Expects OK of Branch Purchases CRC’s support for Banc of California to release a public reinvestment plan prior to its acquisition of 20 Banco Popular branches is cited. Andrew Edwards. Los Angeles Business Journal. July 15, 2014.

Activists Oppose Banc of California Acquisitions CRC’s opposition to Banc of California’s acquisition of 20 Banco Popular branches is cited in this article. Andrew Edwards. Los Angeles Business Journal. July 14, 2014.

Tenants Rights After a Foreclosure Upheld by California Court of Appeal

LeaseAgreement Photo

Last week, the California Court of Appeal reversed a trial court’s earlier decision and instead ruled in favor of Rosario Nativi, and her son Jose Roberto Perez Nativi, two tenants who were evicted when their landlord was foreclosed on.   The mother and son had been renting the garage of a house for several years in Sunnyvale, and then in 2009, the property was foreclosed.  The Nativis did not realize their landlord had stopped paying the mortgage, and had continued dutifully paying their rent.

After the foreclosure, Deutsche Bank became the owner of the property, and hired American Home Mortgage Servicing, Inc to service the property.  American Home Servicing, Inc, then hired XL Advisors Inc. dba Advisors Real Estate Group (Advisors), to prepare the property for sale and remove the tenants.

Despite the fact that the Nativis had a lease, representatives of Advisors Real Estate Group removed all of  their belongings and put them outside where they were ruined. Advisors Real Estate Group also called the police when the Nativis tried to regain access to the garage they had been renting.  The tenants sued, and a trial court ruled in favor of Deutsche Bank.  However, the California Court of Appeal reversed that decision on January 23, 2014.

Madeline Howard, who helped initiate the case while at Bay Area Legal Aid and is currently a staff attorney with Western Center on Law & Poverty, explained the significance in a press release: “Because of this decision, tenants like the Nativis, who were locked out of their apartment and left homeless, have recourse in state court.”

The story of a bank becoming the owner of a home after a foreclosure trustee sale is common in California.  Unfortunately, so is the experience of these two tenants who had continued paying their rent and should not have been evicted.  After a trustee sale, some real estate agents will try and get the current tenants out of the property as quickly as possible, offering cash for keys, making illegal threats, or even calling the police.  Tenants may or may not know their rights, and the real estate agents may take advantage of this and try and force them out quickly.

Kent Qian, from the National Housing Law Project, explained the decision is an important victory for tenants under the Protecting Tenants at Foreclosure Act (PTFA), for three reasons:

1) The court ruled that bona fide leases “survive” foreclosure under the PTFA;

2) Tenants in illegally converted garage units are protected under the PTFA; and

3) State law claims can be brought to enforce the PTFA.

As the WCLP press release explains, “the federal Protecting Tenants at Foreclosure Act requires post-foreclosure owners, including big banks, to step into the shoes of the former landlord when they acquire a rental property.”

To read more about the case, visit:

Western Center on Law and Poverty Press Release: “Court of Appeal Rules that Big Banks Step into Shoes of Foreclosed Landlords When Trying to Evict Tenants” 

Law 360 “Calif. Leases Survive Foreclosures, Appeals Court Says

To read the decision, visit this link: Court Opinion.

If you are a tenant who is losing your housing because your landlord is being foreclosed on, you may want to visit the Tenants Together Action Guide for California Tenants in Foreclosure Situations  or call their Tenant Rights Hotline.

The Western Center on Law and PovertyBay Area Legal AidAlborg, Martin & Buddle LLP, and Jenner and Block represented the Nativis.

An amicus curiae brief, drafted by the National Housing Law Project and AARP Foundation Litigation, was filed on behalf of the National  Housing Law ProjectNational Law Center on Homelessness and Poverty, the AARP Foundation Litigation, the National Fair Housing Alliance, and the California Reinvestment Coalition in support  of the Nativis.

Celebrate LA Reinvestment

On a beautiful Thursday, November 7, evening, CRC members and friends gathered to celebrate Los Angeles Reinvestment.  More than one hundred people filled a room at the Music Center of Los Angeles County, to honor the important work of community heroes, network and enjoy fine food and drink at CRC’s thirteenth LA celebration.

James Zahradka, CRC Board of Directors’ Chair and Namoch Sokhom, Director of PACE Business Development Center, welcomed the crowd and thanked those present for supporting CRC and reinvestment in Los Angeles. Every year, CRC honors individuals and groups with CRA Panther awards for the significant impact they make in the communities they serve.  CRC presented four Panther awards this year to community heroes.

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Inner City Struggle

CRC Board member and Director of the Community Wealth Department at East LA Community Corporation, Daniel Rodriguez, introduced Maria Brenes, Executive Director of InnerCity Struggle (ICS).  ICS works tirelessly for social and educational justice in the communities of East Los Angeles, Boyle Heights, El Sereno and Lincoln Heights. ICS organizes youth and families to push for equitable opportunities and quality education to ensure all students graduate and attend college as well as for the opening of neighborhood schools.  Recently, their efforts led to the establishment of wellness centers at local high schools and increased access to the School District’s Breakfast Program.

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Khmer Girls in Action

Namoch Sokhom, CRC Board member and Director of the Business Development Center at PACE, gave the CRA Panther award to Lian Cheun, Executive Director of Khmer Girls in Action (KGA). KGA does outstanding work to help Southeast Asian young women in the City of Long Beach to blossom like lotus flowers and become powerful forces in the movement for social justice. KGA works to bring better health services and justice to Long Beach and to improve graduation rates for Khmer girls and all students.  The girls organize to make their voices heard, empower themselves, and educate elected officials and community leaders.

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Pat Pinto

CRC Board member and Executive Director of the Southern California Housing Rights Council, Chancela Al-Mansour, introduced Pat Pinto from the Legal Aid Society of Orange County. Ms. Pinto is an extremely effective advocate for at-risk homeowners in the entire Los Angeles and Orange Counties area.  She is a leader in developing the Foreclosure Mandatory Settlement Conference program to assist homeowners in Orange County and has advised Advocates for Consumer Justice on how to structure such a program in Los Angeles County.

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Vermont Village Community Development Corporation  

Lori Gay, Executive Director of Neighborhood Housing Services of Los Angeles County introduced Robert Rubin, Executive Director of the Vermont Village Community Development Corporation (VVCDC). VVCDC is based at the Crenshaw Christian Center and has opened its doors for multiple large-scale foreclosure prevention events for borrowers in trouble in South Los Angeles.  The CDC works closely with the Center for Foreclosure Solutions as a counseling referral source for thousands of home owners and parishioners. As part of the NSP 2 consortium, VVCDC has worked to rehab dozens of homes and numerous multi-family REO properties to respond to the mortgage meltdown.

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(Above) Lori Gay introduces Panther Award recipients Vermont Village Community Development Corporation; (Below) Executive Director Robert Rubin accepts the award on the organization’s behalfDSC_0210

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CRC Board member and Executive Director of VEDC, Roberto Barragan, presented a proclamation from Congresswoman Maxine Waters to Executive Director Alan Fisher.  Roberto and the Board of Directors thanked Alan for his years of service.

CRC Board Chair James Zahradka recognized the many community leaders in the gathering and thanked them for attending and introduced.  He also introduced Paulina Gonzalez, who will begin work as CRC’s executive director in January 2014.

Everyone present recognized the outstanding work being done by the honorees as well as many in the audience.

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