Banks are Building “Credit Deserts” in Birmingham and Elsewhere

182984189-465119Edinburgh   We have real deserts like Sahara, the Gobi, Mohave, or Chihuahuan in the world. We have food “deserts” in many lower income communities with little choice but mom-and-pops, corner stores, kiosks, and bodegas to serve millions. Now there’s increasing evidence that banks have been allowed to build “credit deserts” in many cities, and work in Birmingham, the second largest city in the United Kingdom, makes it clear the map of the desert is also the outline of lower income communities in the city.

It shouldn’t be a surprise. Reportedly, British banks have shut down 42% of their branches over the last 15 years, and of course a huge percentage of the closures have been in lower income areas. Fleeing from the responsibilities of community banking has long been a trend in the United States of course, but in the United Kingdom the concentration of most banking in a handful of companies exacerbates the crisis. The U.K.’s antitrust regulator, the Competition and Markets Authority, recently said that Britain’s retail banking market isn’t competitive enough, but then didn’t do much about it and made no proposals for forcing the country’s big lenders from making any radical changes to their businesses. U.K retail and business banking is dominated by four banks: Lloyds Banking Group , Royal Bank of Scotland Group , Barclays and HSBC Holdings holding approximately 70% of personal current accounts and 80% of business accounts in the U.K.

Now as data is becoming available in recent years on where small businesses, mortgage loans, and smaller consumer loans are being given by banks, the city council of Birmingham did some number crunching, and then laid out the results on a map. In general Birmingham citizens had less access to credit than virtually any other part of the UK, but more specifically when a comparison was made on where loans were NOT being made, the overlap with lower income communities was precise. There is no question that banks are discriminating against low and moderate income families as a matter of policy and as a key part of their business plan.

While the banks build a “credit desert,” the vultures that sweep in to feed on the people are of course the payday lenders and cities in the UK, just like the US and Canada are seeing a feeding frenzy. ACORN organizers not only in Birmingham but in other cities in England and Scotland were quickly able to rattle off the names and addresses of payday lenders, pawn shops, and other quick money spots in our neighborhoods.

While visiting we looked up the regulations on payday lenders in the UK. Not much hope for relief there in the credit desert. Pretty much everything goes if the interest rate on the loans was less than 100% of the loan itself. Checking the popular internet money lender, Wonga, to our shock they boldly displayed an APR or annual percentage rate for their lending rate at 1509%.

The plan seems to be to discriminate in lending and then open the door wide so that the pockets of lower income families can be picked clean.

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“Payday Loan Song”by Erich Vieth

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Wholesale Bank Retreat from Lending to Lower Income and Minority Borrowers

cra1New Orleans      The Community Reinvestment Act (CRA) passed in 1978, more than 35 years ago, was straightforward. Banks could no longer redline, meaning they could not use the deposits from lower income and minority neighborhoods to finance mansions for the rich in the sprawling suburbs. More plainly stated, they could not discriminate in their lending. As importantly, under the Home Mortgage Disclosure Act (HMDA), they couldn’t hide their lending records, but had to make them transparent enough for regulators and the rest of us to know that they were doing right. Fair enough, and this worked not perfectly, but pretty well, for almost 30 years until the Great Recession by meeting the huge demands in our communities for homeownership.

Without being willing to come right out and say so, banks have gone to war against the CRA and lending to low-and-moderate income and minority communities without formally revealing that they have agreed to a declaration. They don’t want to say they don’t want to loan anymore to lower income working families and minorities, but they just don’t want to do so.

The war is being led by the biggest of the banks, especially JP Morgan and Bank of America. JP Morgan’s Jamie Dimon, indicated that the bank has reduced its exposure in the market for FHA insured loans that are targeted to first-time homeowners with “little wealth, especially minorities, because it allows borrowers to make down payments of just 3.5%.” A year ago Morgan accounted for 12.7% of these loans, but most recently it revealed that its share is down to 2.3%, which is to say, knocking on the door to doing nothing. Bank of America has also retreated, claiming it will focus primarily on servicing his existing customers with accounts at the bank.

And, what is their rationale for the retreat? Well, this is interesting, because it goes to the issue of transparency and accountability for lending, which was at the heart of HMDA as well.  First and foremost is the fact that they don’t want to hold the loans on their books. For right now this is why 80% of their loans are pushed into programs with various federal guarantees. A new accounting rule proposed for 2018 could make this even dicier, because they will be required to write off a portion of the loan at the same time they are making the loan, which you just know will scare the heck of them. Here’s the rub. Dimon is whining because his bank and a pack of the others are now paying fines, $614 million for Chase, because they defrauded FHA by claiming that some loans they packaged met the FHA requirements that didn’t, and even after an internal audit discovered this, they tried to continue the cover-up and not inform the FHA that they had swindled them until an internal whistleblower spilled the beans.

So, let’s all understand, Morgan got caught cheating the government, so now the big whine from CEO Dimon is that they lost money on the scam, because they are having to pay a penalty for doing wrong. They essentially want some kind of do-over rule that allows them to cheat, say I’m sorry without a fine, and keep doing whatever they feel like doing.

And, one thing Morgan, Bank of America, and others don’t feel like doing anymore is lending to first timers, working families, and minorities it seems. Unfortunately the way the CRA has had its teeth pulled over the years makes this possible, along with the fact that the Federal Reserve is the police watching over the banks and their CRA obligations, and they have tended to play patty cake on these lending obligations for years.

We need to look at the coming CRA numbers more and more rigorously, because whether we know it or not, we’re in a fight to keep money in our communities, and we’ve got a huge body count already and no sign of any cavalry coming to save us.

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Citizen Participation in Paterno and Banks Settle for Billions On Small Foreclosure Aid

Paterno    Every place is different whether town or country, but there’s something about waiting for a meeting to start in many countries that always feels the same.  My presentation in Paterno before the members of La Citta civic movement and many others who had been invited was scheduled for 7 pm.  I had been warned that we would not possibly begin until 730.  At 730 there were hardly 20 people inside visiting and smoking in the street.  When we finally began another 15 or 20 minutes later, most chairs were full and there were perhaps 40 as the president of La Citta introduced me.  By the time I started speaking at 8PM, there was a standing room only crowd, many of which finally had to stand behind me, and we might have squeezed 80 to 100 people into the room.  What do I know?!?

I made the case for citizens’ participation and the power organization and collective action could build, as I always do, citing examples from 40 years and experience around the world.  They were polite and attentive to the translation, and especially interested in what I argued was a unique opportunity that civic movements had to directly engage politics and access to the ballot in Sicily.  As always, it was the questions and answers that I enjoyed most, teaching me even as I got a better feeling for what was really on their minds.  They wanted to believe something was possible, but they were skeptical.  Paterno was a smaller city based on the agriculture all around them and they saw themselves under attack including by a new mall – Etnaopolis, I think it was called – on the outskirts of town that was squeezing small shops dry.  There was interest in our work in curtailing the growth of Walmart in Florida and our FDI Watch campaign in India. 

Access to banks, credit and loans are huge issues that I hear my friends talk about all of the time.  I was surprised when I mentioned our home mortgage and community reinvestment campaigns that there were not more questions about this.  I think this is more than skepticism and something more akin to cynicism now.  ACORN Italia or any future ACORN Sicilia will have to research this more thoroughly.

Some of our past victories against banks seem hollow as I read the headlines on the foreclosure settlement about to be announced by the government and driven by the hard work of the attorneys general in the states.  The number looks huge – $26 billion!  Unfortunately, it seems the relief for the borrowers who are “underwater” on their loans seems small compared to the huge number of families in this sinking boat.  Since the Obama Administration and the Treasury Department have been so weak and wimpy in this area, the AGs had little stroke in correcting past banking misdeeds to win more on writedowns, I suspect.  The relief to homeowners already screwed is mostly symbolic and almost an insult.  Some number of them will get $2000, but even that seems to be in payments over 3 years?!?  Are you kidding, $600+ a year for a couple of years hardly offsets having lost your home because of mortgage shenanigans from the big banks who are party to this play (Chase, Wells Fargo, Bank of America, Citi, and so forth).  It is amazing how bad the banks have been in driving this recession, administering true and deep harm to families, being bailed out, and still largely getting away without huge consequences.  Meanwhile this new settlement, gives them a “get out of court free” card for future litigation.

I should feel lucky that people in Paterno didn’t ask me more questions about banks and credit.  I might have been embarrassed by the morning newspapers when they finally catch up on the 7 hour time zone change!

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Truth in Lending 3 Day Delay

16wczo600New Orleans There are some people who spend their lives convincing folks that up is actually down.  Mortgage brokers are the escape artists of the subprime lending business and after Wall Street should be at the top of the list of responsible and predatory parties in the entire meltdown.  Amazingly and seemingly without a blush, they are now whining that the new three (3) day delay to allow borrowers to carefully examine the interest rates that they are being asked to pay before closing loans is out of line and is going to “slow” the process.

Here’s a big mound of poppycock piled on top of balderdash.  The nerve!

An article the New York Association of Mortgage Brokers managed to spin into the Times last week was a classic example of criminal types without remorse.  The number of times, now depressingly well documented, that mortgage brokers scammed unsuspecting borrowers with flannel mouthed tales about their supposedly fixed interest rate only for them later to learn a couple of years down the line that their rates were adjustable and ballooning, is now inestimable.

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