Similar to how check cashers and payday lenders set up shop around military bases to prey on enlisted personnel and their families, they're now lurking around retirement homes to prey on the elderly. And worse, a loophole in federal law allows them to have Social Security deposits made directly to their accounts, from which they dole out "allowances" to their victims.

The Wall Street Journal explains:

Such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran's benefits. "These people always get paid, rain or shine," says William Harrod, a former manager of payday loan stores in suburban Virginia and Washington, D.C. Government beneficiaries "will always have money, every 30 days."

The law bars the government from sending a recipient's benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.

As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients' finances.

So it should come as no surprise that these outfits are "clustered around government-subsidized housing for seniors and the disabled" according to a HUD data analysis cited in the article.

The article has several horror stories, including the case of an illiterate senior in Alabama ("who believes he's 80 but isn't sure") who ended up homeless after getting tangled up with a large Georgia company that operates "lending stores" in Alabama, Georgia, Florida and Louisiana.

According to the article, arrangements between lenders and banks to redirect government benefit deposits aren't tracked by any regulatory agency so the extent of the problem is not known. But, it says that a "2006 study by the Consumer Federation of America found that one-fifth of those without conventional bank accounts are receiving their government benefit checks through nonbanks, including payday lenders that also operate as check-cashing stores."

Labels: economic justice, predatory lending, seniors

It's no secret that young people are drowning in debt. Two-thirds of 20-somethings are in hock, usually a mix of college loans and credit card debt. More shocking, half of Americans in their 20s have missed paying on their debt, having to battle a collection agency, have their car repossessed, or declare bankruptcy.

It's also no secret why youth are sinking into financial insolvency -- and it's not just because they're shelling out cash for iPhones. Stagnant wages and the rising cost of college -- and the shift from college grants to loans to pay for it -- are big pieces of the problem.

Another culprit are banks that prey on the vulnerable -- and keep youth (and others) mired in debt.

The excellent Center for Responsible Lending has issued a new report showing one way banks keep youth in the red: overdraft fees. The Center study, "Billion Dollar Deal," finds that each year, banks fleece nearly $1 billion from 18-24 year olds in questionable fees:

Banks and credit unions across the country are making unsolicited loans to customers without warning when their checking account balance falls below zero, and then slapping them with high fees for each overdraft transaction. This practice generates enormous revenue for the banks and frequently drives accounts even deeper in the red. Consumers are paying $17.5 billion per year in abusive overdraft fees—more than the credit they get when banks cover their overdrafts!

This morning CRL released a new report, "Billion Dollar Deal" (pdf), which finds that 18- to 24-year-olds are paying $963 million per year in fees for abusive overdraft loans. An age group dubbed "Generation Plastic" for their reliance on debit and credit cards, young adults tend to use their debit cards for frequent small purchases like burgers or coffee. Without a warning or denial from the bank, a small overdraft can cause a cascade of additional fees. The overdraft loans are small and the fees are excessively high – young adults pay more than $3 in fees for every dollar borrowed in the form of a debit card overdraft.

The Center is encouraging people who care about this issue to get behind legislation now before the House Financial Services Committee that would "put the protection back in bank overdraft policy":

Tomorrow, September 25, theU.S. House Financial Services Committee will vote on sending H.R. 946, the Consumer Overdraft Protection Fair Practices Act, to the full House. H.R. 946 as written would put a stop to many of banks' most abusive overdraft practices.

There is no time to lose. Please tell your representative today to support H.R. 946 without any amendments. If your representative is on the House Financial Services Committee, it is urgent that you act now before tomorrow's critical committee vote.

For more information and a sample letter to send your Congressperson, visit the Center website.

Labels: predatory lending, youth

As we've documented here at Southern Exposure and the Institute, the South as a region has been hit harder than other regions by sub-prime lending. A new study from ACORN finds that this is now putting Southern families at a unique risk of losing their homes in the still-unfolding foreclosure crisis.

According to the report:

The South is particularly vulnerable to concentrated foreclosures as the national crisis stemming from risky loans sends monthly mortgage payments soaring beyond affordability, a new ACORN report on national mortgage data demonstrates.

“Foreclosure Exposure: A study of racial and income disparities in home mortgage lending in 172 American cities,” identifies communities facing concentrated foreclosures – and shows that families of color run a disproportionate risk of losing their homes.

Of the 10 metropolitan areas found to be at the highest risk nationwide, seven were in the South, and data showed that high-cost subprime loans accounted for more than two-fifths of all loans issued in those cities.

African-American and Latino homeowners were found to be more than twice as likely to hold a high-cost, subprime loan than were white homeowners. Many borrowers could have qualified for more affordable, fixed-rate loans, but were unscrupulously guided toward more expensive products.

The report also looks at how foreclosures can hurt communities -- for example, "vacant homes depress property values by inviting crime and increasing blight."

ACORN is calling on lenders and servicers to modify loans to make them more affordable, and on state and federal governments to pass strong laws against predatory lending without pre-empting local legislation already in place.

Labels: predatory lending, Work and Community

A payday lender trade group launches a $10 million PR campaign to rehabilitate their image. In their TV commercials, they say “Please borrow only what you feel comfortable paying back when it’s due.”

Consumer advocates, however, note that they still charge up to 400% interest and aren't impressed with this newfound sense of responsibility:

“Payday lenders make it easy for consumers to get trapped in predatory debt,” said Teresa Arnold, legislative director for AARP in South Carolina.

State legislators in South Carolina are considering a bill to cap interest and fees for payday loans at 36%. The sponsor of the legislation explains why it's a growing problem in the state:

State Rep. Alan Clemmons, a Republican who introduced the South Carolina legislation, said it’s needed because neighboring states have either banned or sharply restricted payday loans. In response, lenders have increased business in South Carolina, and the state has become “payday lender Mecca,” Clemmons said.

According to the article, the AARP says the number of payday lenders in South Carolina has doubled over the past five years.

There's another bill that would ban payday lending altogether. According to this article, there are 1,220 payday lenders South Carolina. The state AARP chapter has organized town hall meetings this week to discuss the need for reform.

Elsewhere, Alabama State Sen. Bradly Byrne says he made a mistake in supporting a 2003 law that exempted payday lenders from the state's usury laws. He says he will introduce legislation next month limiting interest and fees to 36%.

In Tennessee, SB1583/HB2149 "Reduces maximum fees that title pledge lenders may charge from 20 percent to 15 percent of the original loan amount; requires principal reduction payments to begin at the first rather than third renewal of the loan; clarifies that routine principal reduction payment deferral is prohibited." SB1584/HB2132 "Limits amount of fees charged by title pledge lender; increases monthly payment amount required by such lenders; gives persons aggrieved by title pledge lenders certain rights including a private right of action; and makes other modifications to the title pledge lenders law." SB1070/HB1431 "Specifically prohibits title pledge lenders from advertising using words that are false or misleading."

In related news, federal banking regulators are cracking down on subprime mortgage lenders:

The devastating reign of "exploding" adjustable-rate mortgages (ARMs) in the subprime market may soon be over. Today federal banking and credit union regulators proposed to clamp down on these risky loans by requiring depository institutions to do more careful assessments before approving these loans for credit-strapped consumers. Exploding ARMs, which begin with a fixed "teaser" interest rate for two or three years and then switch to an escalating adjustable rate, are the most common type of loan in the subprime market, and they have been linked to an alarming increase in foreclosures on subprime home loans.

A sampling of reaction to the news:

Maude Hurd - ACORN National President: "The steering of subprime borrowers into ARMs is one of the biggest predatory practices today, with three out of every four subprime borrowers being given these ARMs that quickly become unaffordable after just two or three years. In the best case, these loans merely result in the loss of equity when homeowners refinance and have to pay new closing costs and prepayment penalties. In the worst case, which unfortunately is all too common, these loans costs families their homes. We applaud the regulators and Chairmen Dodd and Frank for their work to protect homeowners from these abusive lending practices."

[..]

Martin Eakes - CEO, Center for Responsible Lending: "This is an important step toward a return to sensible lending. Subprime loans comprise only 13 percent of outstanding mortgages, but they contribute over 60 percent of foreclosures--and the vast majority of subprime loans today are exploding ARMs. I want to thank FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke, OTS Director John Reich, Comptroller John Dugan, and NCUA Chairman JoAnn Johnson for sending a clear signal that they will not tolerate irresponsible lending practices that put families' homes and wealth at undue risk. I'd also like to thank Chairmen Chris Dodd and Barney Frank for their continuing efforts to ensure that all homeowners receive loans that are sustainable, rather than set up to fail."

The news from other fronts is not so good.

Georgia banned payday lending three years ago, but the legislature is considering a new bill promoted by payday lenders that would again allow the practice in that state.

The Virginia legislature rejected proposals to outlaw or at least reform payday lending in that state, which has only been allowed since 2002.

Similar legislation in Arkansas to make payday lending subject to usury laws failed to make its way out of the Commerce Committee, with only one member voting for it.

Labels: economic justice, predatory lending