The Associates/Ford Campaign
The predatory lending schemes on which Fleet had cut its teeth were The Associate’s bread and butter. Whereas Fleet Bank had a major presence in the East, The Associates was the largest finance company in the US and conducted significant operations throughout the country. Purchased by Ford in 1989, The Associates became experts in targeting working people with consumer transactions, such as appliance and electronics purchases, and luring them into more and more debt. Once the debt was converted into mortgages, they were able to strip equity from people’s homes. The mortgages were a gold mine, with high rates, fees, and repeated refinancing. In 1996, for example, almost two-thirds of Ford’s profits, or $2.8 billion, were generated by financial services, of which The Associates were a major component.
NACA stops settlement of class action by Associates/Ford
The Associates had a tremendous advantage in the predatory loan business because they were not under the jurisdiction of the bank regulators. The lax oversight of the Federal Trade Commission gave them room to be inventive with their loan scams. These predatory practices eventually brought The Associates under legal scrutiny. With numerous individual lawsuits underway, plaintiff lawyers Daniel Edelman and Edward O’Brien sought class action status for a suit they filed against The Associates in 1994. By 1996, they had reached a settlement with The Associates, which would provide either $50 or a $250 rebate on a new loan for the 80,000 borrowers in the class. Edelman and O’Brien, on the other hand, would be eligible for over $1 million in fees. Moreover, the customers would be unable to pursue any further legal remedies from The Associates.
This settlement was an irrelevant gesture for the people who had lost their homes or been financially devastated. The lawyers, Edelman and O’Brien, representing those victims, however, had landed a sweet deal for themselves and The Associates. To NACA, this was an instance of an increasingly common abuse of the class action system by companies who would look for lawyers more interested in making a quick buck than fighting for their clients. NACA was determined to reverse this trend and win a fair settlement for the victims.
Thousands rally against The Associates and Ford
NACA began its campaign in October of 1996 with a rally of over 10,000 people in Atlanta. Judge George O’Toole of the Federal District Court of Massachusetts was bombarded with postcards protesting the injustice of the settlement. Despite NACA’s initial efforts, Judge O’Toole gave preliminary approval to the settlement in February of 1997 and scheduled a fairness hearing for September.
NACA needed to mobilize a full campaign. It sought out a law firm that would be committed to a fair settlement for the victims. Class action firms were wary of taking the case, fearing that it might prompt a reexamination of other settlements that provided minimal benefits to the class, but immunity for the corporate defendants. NACA turned instead to a criminal defense law firm that had a proud history of supporting progressive and controversial issues. This law firm, Stern, Shapiro, Weissberg and Garin and attorney David Kelston agreed to represent The Associates victims at no cost. They faced a tremendous task in that they needed to convince Judge O’Toole to overturn a settlement that he had tentatively approved. Because the settlement provided The Associates with immunity, NACA would have minimal leverage in a campaign unless it was rejected.
Finding and mobilizing the victims
The first strategy was to show that few, if any, of the borrowers actually agreed with the settlement. NACA launched a nationwide effort to establish contact with the borrowers, ascertain the extent of the damage they had suffered, and inform them that they had other options. NACA hired researchers from around the country to gather the names and addresses of people who had obtained a mortgage through The Associates. In some states, this information could be purchased; in others, researchers pored over the registry of deeds. NACA obtained the names and addresses of Associates/Ford borrowers and contacted over 100,000 such borrowers. They were sent extensive information and NACA began the organizing of the victims for actions targeted at Ford.
The response was incredible–there were thousands of people to work with and many volunteered to find others. The mortgage holders had felt isolated and often blamed themselves for their difficulties. They were unaware that they were the victims of an orchestrated scheme to push them into more and more debt. NACA and the lawyers followed up with as many people as possible, and not one person agreed to the settlement pushed by Edelman and O’Brien.
Exposing the greedy class action lawyers
Concurrently, NACA applied pressure to Edelman and O’Brien themselves. Whereas O’Brien was a sole practitioner who had a limited ability to pursue the case alone, Edelman was an experienced class action attorney. In fact, he had a reputation for earning millions from class actions that provided few benefits to members while granting immunity to the corporations. Some judges even stated this on the record in previous lawsuits involving Edelman.
NACA provided this information to The Boston Globe and other publications, which extended the research and wrote about the apparent sell-out of the class. Edelman and O’Brien were active members of the National Association of Consumer Advocates, and Edelman sat on the board. NACA pursued the lawyers right to the doors of their annual convention in Washington, D.C. With hundreds of lawyers present, NACA supporters, led by Reverend Graylan Hagler, NACA’s development director, distributed flyers during the opening ceremony and shifted the focus of the discussion to the ethics of the association’s own members. Edelman resigned in disgrace.
Backed by the tremendous response from The Associate’s victims, NACA reached out to the national media. ABC’s Prime Time Live was extremely interested in the story and questioned Edelman directly at a federal court hearing on the settlement in May 1997. He was unable to defend his position or name victims who supported the settlement. By September, when the fairness hearing was scheduled, there was extensive exposure of how much The Associates’s victims had suffered and how little they would get from the settlement.
Judge overturns unfair settlement
Judge O’Toole had received notices from a large number of people who wanted to opt out and tens of thousands of post cards opposing the settlement. The fairness hearing lasted three hours in a courtroom packed to overcapacity with victims and the media. Three and one-half long months later, on January 30, 1998, O’Toole returned a rare ruling: The settlement was overturned. NACA was successful in convincing the Federal Judge O’Toole to throw out an Associates/Ford settlement that would have provided Associates/Ford with immunity, the lawyers with millions of dollars, and the victims with only $50. NACA was not only successful in opening the door for new actions against The Associates, but it sent a clear message that class action attorneys could not continue to make off with quick and easy settlements that provide no real benefit to the class. NACA could now pursue statewide class action lawsuits against The Associates and other actions without concern of being undercut by legal action.
Holding Ford accountable
Rather than rely on the courts, NACA engaged in the aggressive advocacy that is its standard operating procedure. During the legal fight to overturn the settlement, NACA had already begun to apply pressure on Ford Motor Company to rein in its subsidiary. NACA wanted Ford to understand that it would be held accountable for the actions of The Associates, and that The Associates would both soil its name and create huge liabilities. Vans set out from Boston, Hartford, western Massachusetts, Buffalo and elsewhere to confront Ford executives at their 1997 annual meeting.
On May 8, 1997 in Windsor, Ontario, NACA Members, supporters, and victims of The Associates entered the shareholder meeting to present their case to Ford’s CEO Alex Trotman. Although some of the participants were searched as they entered, NACA was able to get its materials inside an auditorium of about 250 people that was packed with Ford executives and directors. Soon after Trotman began the meeting, NACA took the floor. Despite the attempts of the security to prevent the action, the victims rose to speak to the assembled executives about the hardship they had endured at the hands of The Associates.
Trotman responded that he would investigate The Associates’s operations and look into the individual cases. After the meeting, their chief legal people met with the victims who had shown up and took action to resolve their cases. When the Prime Time Live investigation aired on April 23, 1997, the negative publicity focused on Ford intensified dramatically. Ford became increasingly aware that NACA’s campaign was impacting their image and intensifying regulatory scrutiny. Within six months, Ford announced that it would divest from The Associates. By April 7, 1998, Ford divested fully–an amount equal to one-third of Ford’s total market value.
Keeping the pressure on The Associates
In the meantime, NACA had begun an extensive campaign in Washington, D.C. The Federal Trade Commission and the Department of Justice were very interested in the thousands of detailed files NACA had created documenting The Associates’s predatory, unconscionable and illegal predatory practices. NACA’s case files and additional information provided the groundwork for the FTC’s investigation and prosecution of The Associates.
NACA also moved to prevent The Associates from obtaining regulatory approval for expansion of their operations. In light of the growing scrutiny in Washington, on February 11, 1998, the Office of Thrift Supervision denied The Associates’s application to operate a thrift institution. The Senate Committee on Aging met about a month later to hold hearings on The Associates. That evening, March 16, 1998, all three major news stations carried stories about their predatory lending practices. The Wall Street Journal and other media outlets continued to highlight The Associates’s practices on their front pages.
By early 1999, The Associates had yet to provide any relief to their victims. Their first shareholder meeting as a separate company (following Ford’s divestiture) was scheduled for May in Irving, Texas. NACA decided to stage an action from its Dallas/Fort Worth office that would attempt to force the issue. NACA had discovered that The Associates were using deceptive accounting techniques to run a Ponzi scheme that exploited their customers and defrauded their investors. As they flipped borrowers loans, The Associates would show the refinanced fees as net profit. Of course, these profits never materialized because the borrower already had problems paying the existing lower mortgage amounts. Both borrowers and investors were being scammed.
NACA Defeats The Associates
On Friday May 7, 1999, as NACA Members and The Associates’s borrowers were gathering in Dallas for the meeting, NACA filed statewide class action suits in Massachusetts and California alleging that The Associates were victimizing its borrowers and deceiving its investors. The Associates agreed to meet NACA the next day. After a fourteen hour marathon negotiating session, NACA emerged with an unprecedented agreement that would ease the burden of every high rate mortgage customer of The Associates.
After NACA’s four year campaign, The Associates agreement provided billions in savings for The Associates’ customers and was a revolutionary change for lending in the subprime market. On-time mortgage payments would be rewarded by an automatic reduction of the customer’s mortgage rate, for cuts reaching 2.25% over a three-year period. Because the reductions were automatic, there would be no refinancing involving additional fees and costs. In contrast to the Edelman-O’Brien settlement, this agreement would allow typical customers to save $170 a month which would save the borrower over $20,000 if they kept the loan for ten years. In addition, The Associates did not obtain immunity from further suits or regulatory action. A number of other class actions, including a suit filed by Milberg Weiss, the largest class action firm in the country, have not achieved any success against The Associates. Finally, The Associates agreed to commit $100 million to low-income lending through NACA’s program, an amount that has since grown to $600 million, and now $3 billion with Citigroup, who purchased The Associates.
The Mortgage Reduction Program was an inventive and bold approach to limiting the ability of lenders to flip loans with padded fees and other abusive costs and terms. It is now used extensively by major lenders and Fannie Mae and is strongly encouraged by the Office of Thrift Supervision. NACA’s grassroots work with thousands of homeowners and relentless commitment to the mission accomplished what the lawsuits could not—a true change in the nature of the subprime lending market.
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