October 21, 1999

Community groups say aggressive lenders target minorities

By LESLIE MILLER

High-cost lenders are targeting low-income communities where traditional loans aren't available, according to a study by the Association of Community Organizations for Reform Now, or ACORN.

Although lenders have for decades targeted blacks and low-income borrowers for high-interest loans, ACORN said Thursday the practice is on the rise nationally.

"These guys are actively recruiting in low-income areas," said Jo Ellen Chernow, Massachusetts ACORN spokeswoman.

In Boston, ACORN found lenders made a disproportionate number of high-cost loans to blacks and low-income borrowers, and in low-income and minority neighborhoods, during 1998.

The Federal Reserve Board documented that 33 percent of the recipients of high-cost loans could be getting better deals reserved for those with perfect credit records, Chernow said.

The study was timed to coincide with negotiations between the White House and Republican lawmakers over the fate of community lending rules for banks. Conflict over the rules, the result of the Community Reinvestment Act, has almost torpedoed legislation that would lift Depression-era legal barriers and allow banks, brokerage firms and insurance companies to merge and sell each other's products.

"If the Community Reinvestment Act is eliminated or weakened, there's no saying what will happen," Chernow said.

According to the ACORN study, the 10 largest subprime lenders - those who make loans with higher interest rates to borrowers with less-than-perfect credit - made six times more home improvement and refinance loans in minority neighborhoods in Boston than all other lenders.

Low-income borrowers received 13 percent of the home improvement and refinance loans made by the 10 largest subprime lenders in Boston, ACORN found. All other Boston lenders made only 4 percent of their loans to low-income borrowers, ACORN found.

"Certainly it's well established that when traditional lenders don't lend, the subprime and predatory lenders move in," said Bruce Marks, a housing activist and chief executive officer of the Neighborhood Assistance Corporation of America.

But, he said, things are getting better.

Since 1995, traditional lenders have dramatically increased their lending in poor and minority neighborhoods in Boston, Marks said.

His group has made more than 1,100 low-cost loans in Boston in the past four years, three-quarters of which went to minority homeowners and all of which were underwritten by major financial institutions.

Robert Fichter, spokesman for the Massachusetts Bankers Association, said there are many first-time homebuyer programs now available in Boston. The Bankers Association does not represent subprime lenders.

"I think Boston is one of the nation's leaders in increasing opportunities for homeownership," Fichter said.

Tony Hoppa, a spokesman for Charlotte N.C.-based First Union Corporation, whose subsidiary, The Money Store, is one of the lenders mentioned in the ACORN report, said the company had made significant improvements since the research for the report was done last year.

Since then, The Money Store has changed its practices so consumers pay the same for services at The Money Store, at its parent bank, First Union National, and on the Internet.

The Money Store has also stopped making loans for more than the value of a property, Hoppa said.

Calls to several other subprime lenders mentioned in the report were not immediately returned.

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