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ACORN's Campaign Against Predatory Lending

If you feel that you have been discriminated against or are a victim of predatory lending call ACORN toll free at 1-877-692-0233, or e-mail us at acorndcadmin(at)acorn.org.


Or find the nearest ACORN office in this list:

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What is Predatory Lending?

The United States in recent years has seen a dramatic increase in a form of legalized robbery known as predatory lending. Predatory lending means imposing unfair and abusive loan terms on borrowers, often through aggressive sales tactics, taking advantage of borrowers' lack of understanding of extremely complicated transactions, and outright deception. Predatory loans turn the dream of homeownership into a nightmare, in the worst instances ending in foreclosure. The damage done is increased by the fact that predatory loans are made in such concentrated volume in poor and minority neighborhoods where better loans are not readily available, and the loss of equity, and foreclosure can devastate already fragile communities.


Problem Documentation


While not all subprime loans are predatory, predatory lending is concentrated in the subprime loan market. There is a place for responsible subprime loans, where somewhat higher interest rates balance the genuinely higher risk of lending to borrowers with past credit problems. Today, however, too many subprime loans include abusive terms or conditions, too many have rates and fees much higher than can reasonably be justified by the credit records of the borrowers, and too many are going to borrowers who could and should qualify for loans at significantly lower rates. A Freddie Mac study suggested that about one third of the borrowers who have received subprime loans could have qualified for prime loans, while Fannie Mae Chairman Franklin Raines estimated that as many as half could have.


Two Victims of Predatory Lending:

A California woman went to one of the country's biggest lenders, Household Finance (which also does business under the name Beneficial) to refinance a small loan. She says she originally had no desire to refinance her home loan, which was at 8.25 percent interest, but Household talked her into it. She ended up with two loans from Household, the first at 11 percent, the second a revolving line of credit at 20.9 percent. She has an excellent credit record, and she should be able to refinance into a loan at close to 7 percent, saving about $400 a month. But between the two loans, including origination fees of more than $10,500 and credit insurance she did not need or want for more than $9,000, she has been loaned more than the value of her home, and banks will not make her a loan for more than her house is worth. As a result, she is stuck in the high interest rates, making payments of $1,403 on a monthly income of about $1,650. With ACORN's help, this woman, like many other borrowers, was able to cancel her credit insurance and obtain a refund. In her case the refund was $5,381. But that doesn't get her out of the other bad terms of her loan.


A St. Louis woman held a mortgage with an interest rate of 9.5 percent and monthly payments of $340. She had fallen behind occasionally on those payments, lowering her credit rating, but needed cash to fix her furnace, chimney, and other items. She was repeatedly assured by Household that a refinanced loan would provide the extra money she needed but be the same as her old loan in all other respects. In reality, the new loan, which was for $46,983, increased her interest rate to 12.5 percent and included $3,874 in fees and closing costs and $3,704 for a single-premium credit life insurance policy. The borrower was never told about a mandatory arbitration clause that was slipped into her loan, which limits her rights to file any claims against Household. She was told she had to take out a $1,349 home and auto membership plan in order to get the loan, but the paperwork said it was optional. In addition, she was wrongly told that her new loan covered taxes and insurance, as her old one had. When she called to speak to her loan officer, she was told he no longer worked there. After she complained about being lied to about her loan terms, Household offered her a loan to pay her taxes, which she refused. Now with monthly payments of $483 for the next thirty years, she is having to seriously cut back on other expenses.

Predatory Lending Practices Include:
    Financing Excessive Fees into Loans
    Charging Higher Interest Rates Than A Borrower's Credit Warrants
    Making Loans Without Regard to the Borrower's Ability to Pay
    Prepayment Penalties
    Loans for Over 100% Loan to Value
    Yield-Spread Premiums
    Home Improvement Scams
    Single Premium Credit Insurance
    Balloon Payments
    Negative Amortization
    Loan Flipping
    Property Flipping
    Aggressive and Deceptive Marketing - The Use of Live Checks in the Mail


Descriptions of Predatory Lending Practices

ACORN's Campaign to Stop These Practices

For over two decades, ACORN has waged a campaign against redlining, worked to increase access to credit for low-income and minority neighborhoods, and fought for greater community reinvestment by financial institutions. Many banks and mortgages have responded with loan products that better meet communities' needs. ACORN's sister organization, ACORN Housing Corporation, has used these products in its homebuyer counseling and education program to help over 45,000 low- and moderate-income families become homeowners. Despite these accomplishments, the banking industry as a whole has continued to ignore inner-city neighborhoods, leaving the door open to abuse by predatory lenders.


Data on the disproportionate rejection of minority and low-income applicants for mortgage loans.


During daily door-to-door organizing, ACORN has encountered a growing number of homeowners who have been taken advantage of by predatory lenders and are at risk of losing their homes. With its successful track record in taking on some of the country's largest financial institutions, ACORN decided to take on this new task of fighting predatory mortgage lending.ACORN is tackling this issue from a number of different angles, including direct action against lenders and other industry players, education and outreach in our communities to help people protect themselves against predatory loans, legislation at the state, local, and federal levels, and regulatory change.


Household International

ACORN has engaged in direct actions against specific predatory lenders, using a variety of tactics to publicize their abuses and pressure them to change. These actions are aimed at both winning restitution for individual victims, and at pushing lenders to change their practices and make credit available to low-income borrowers on fair and equitable terms.


Through our neighborhood work, Household International (parent company of both Household Finance and Beneficial), one of the largest subprime lenders in the country, has also emerged as one of the most abusive, and as a result for over two years now we have undertaken a campaign designed to pressure the company to change its practices.


Household and Beneficial's abusive lending practices include:


    Charging high fees and interest rates unrelated to borrowers' credit risk.
    Refinancing loans and collecting excessive points and fees, when these refinancings leave the borrower worse off than they were before the loan.
    Using deceitful marketing strategies, including sending out live checks which result in outrageously high-rate loans, and then converting these loans into secured loans.
    Trapping borrowers in loans by creating debt greater than their homes' value.
    Using large prepayment penalties, mandatory arbitration clauses, and other abusive terms.


ACORN's campaign against Household has involved:


    Demonstrations at Household offices and at its annual shareholder's meeting.
    Filing complaints and demanding investigations by state regulatory agencies.
    Obtaining credit-insurance refunds for borrowers.
    Putting borrowers in touch with the media to tell their stories.
    Urging cities and labor unions to divest funds from Household.
    Promoting legislation to ban predatory practices by all lenders.


Over the course of the past year and a half, Household has begun to respond to ACORN’s efforts by announcing some reforms in its lending practices, including stopping the sale of single-premium credit insurance on home loans and slightly lowering its fees. In response to ACORN’s working with Household borrowers to file hundreds of consumer complaints around the country, a group of state attorneys general launched an investigation into Household’s lending practices. In October 2002, the state attorneys general announced that Household would pay $484 million to try and settle predatory lending claims – by far the largest consumer settlement of any kind in history – and agreed to a set of legally binding reforms to its practices. While this settlement represents a breakthrough in many respects, it does not address many of Household’s remaining abusive lending practices, and ACORN will continue to push for other reforms from Household.


ACORN's website devoted to Household's predatory lending.



Education and Outreach

ACORN is convinced that education and outreach alone will not solve the problem of predatory lending, but can play a very useful role in spreading the word about dangerous loan practices, and about the availability of alternatives. ACORN is especially well positioned to make use of our extremely frequent neighborhood meetings, and one-on-one conversations in people's homes, along with articles in community papers, bank fairs, fliers and mailings, radio public service announcements, and outreach to other organizations to get the word out. At the same time, ACORN Housing Corporation is providing loan counseling to borrowers in 27 cities across the country. Making use of some of the fairer loan products developed at the urging of ACORN, AHC is assisting victims of predatory lending in refinancing at better terms, as well as helping other borrowers avoid becoming victims in the first place.


ACORN's Recommendations for Consumers.

Legislation and Regulation

ACORN is working at the state, federal, and local levels to push for legislation against predatory lending. These measures impose limitations on high-cost loans and improve upon existing federal law by lowering the interest rate and fee thresholds which define high-cost loans, and by providing many more protections on such loans. These laws do not prohibit the making of high-cost loans, but restrict lenders from including additional terms that strip equity and lock borrowers into harmful loans.


ACORN had won a comprehensive ban on predatory lending in Philadelphia, which was later overturned by the state legislature. ACORN won passage of similar ordinances in Oakland, Los Angeles, and New York City, and also, working with allied organizations, passed anti-predatory lending laws at the state level in California and New York. ACORN-backed state legislation is under consideration in a number of other states, including Massachusetts, Pennsylvania, Maryland, Illinois, and New Mexico, and a strong bill is on the verge of passing in New Jersey.


At the federal level, the top Democrats on the House and Senate Banking Committees, Rep. John LaFalce and Sen. Paul Sarbanes, jointly introduced strong legislation against predatory lending in the last session of Congress. On July 26-27, 2001, the Senate Banking Committee, under the leadership of then-Chairman Sarbanes, held hearings on predatory lending. One of the four victims of predatory lending to testify was Paul Satriano of St. Paul, a Beneficial borrower and ACORN member. Executive Director of ACORN Housing Corporation Mike Shea testified as well. ACORN members from Philly, D.C., and Maryland were up early to beat at least some of the industry lobbyists who as usual had paid people to wait in line for them to get into the hearing room. The busload of Philly members followed up with a lobby visit with Sen. Santorum's staff. Read the testimony and news articles about the hearings.


In the new session of Congress, the biggest subprime lenders are trying to use the Republican majorities to pass legislation introduced by Rep. Bob Ney that would preempt all consumer safeguards enacted at the state and local level without setting any meaningful new protections at the federal level. Learn more about the harmful impact of this legislation.


Regulatory Change

ACORN has demanded action against predatory lending on many fronts from Washington. Presenting the issue and our call for change to top officials at HUD, Treasury, the Justice Department, and the bank regulatory agencies has been a part of ACORN's campaign from the beginning. One result for this has been progress from banking regulators. Another has been a joint task force of HUD and the Treasury Department, on which ACORN served as a member, and out of which came a useful report in June 2000 outlining predatory lending practices, and recommending legislative and regulatory change.


On Dec. 12, 2001, the Federal Reserve finally approved a number of changes it had proposed a year before to the Home Ownership Equity Protection Act (HOEPA), including lowering the APR threshold for high cost loans from 10 to 8 percent above Treasury rates for first liens, and counting credit insurance premiums as points and fees. Absent from the final rule and the proposal were additional protections the Board could and should have enacted against abusive practices. ACORN, like other groups concerned about predatory lending, had long urged the Board to take these steps, with specific actions including: a march on the Fed's offices in Philadelphia by 2,000 ACORN members in the summer of 2000, meetings with three of the five governors; testimony at the Fed's three public hearings on its proposals; and the submission of comments on them. ACORN also welcomed the Board’s subsequent decision to begin collecting annual percentage rate data as a part of the Home Mortgage Disclosure Act (HMDA), although we were disappointed the start date was put off until 2004, meaning it will not be publicly available until mid-2005.


ACORN is also pressing for the reasonable enforcement of existing regulations, including calling on state and federal officials to investigate lenders and take appropriate measures in response to predatory lending. Such measures should include revocation of licenses and prosecution. 


ACORN's recommendations to legislators and regulators.



Setting an Example

One lender, Ameriquest Mortgage Company, has agreed to begin a partnership with ACORN to help raise standards in the industry. In July 2000, ACORN and Ameriquest signed an agreement that will make subprime loans available in ten cities with no pre-payment penalties, no credit insurance, a limit on points and fees at 3 percent of a loan, interest rates below the market standard, and ACORN-Housing-Corporation loan counseling for every potential borrower. The agreement is the first of its kind and provides a clear alternative to predatory lending.


ACORN's recommendations for lenders.


Studies and Reports

In each of 2000, ’01, and ’02, ACORN released two reports based on government data reported under the Home Mortgage Disclosure Act. The first set of reports examine rejections of mortgage applicants in terms of race and income in various parts of the country.


Community Reinvestment Reports


The second set of reports look at which racial and income populations are receiving a disproportionate share of subprime (high-cost) loans.


Predatory Lending Reports


These reports together show that mainstream lenders are neglecting certain qualified borrowers, who are - in part as a result of this neglect - being preyed upon by loan sharks.

What is ACORN?

ACORN, the Association of Community Organizations for Reform Now, is the nation's largest community organization of low- and moderate-income families, with over 150,000 member families organized into 700 neighborhood chapters in 51 cities across the country. the nation's largest community organization of low- and moderate-income families, with over 150,000 member families organized into 700 neighborhood chapters in 51 cities across the country. Since 1970 ACORN® has taken action and won victories on issues of concern to our members. Our priorities include: better housing for first time homebuyers and tenants; living wages for low-wage workers; more investment in our communities from banks and governments; and better public schools. We achieve these goals by building community organizations that have the power to win changes -- through direct action, negotiation, legislation, and voter participation. Since 1970 ACORN has taken action and won victories on issues of concern to our members. Our priorities include: better housing for first time homebuyers and tenants, living wages for low-wage workers, more investment in our communities from banks and governments, and better public schools. We achieve these goals by building community organizations that have the power to win changes -- through direct action, negotiation, legislation, and voter participation.


If you feel that you have been discriminated against or are a victim of predatory lending call ACORN toll free at 1-877-692-0233, or e-mail us at acorndcadmin(at)acorn.org.


Or find the nearest ACORN office in this list:

Contact Us.


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