Henneberger, on the other hand, said Texas needs tougher laws, like the one North Carolina passed in 1999. That measure put strict limits on interest and fees and outlawed flipping, pre-payment penalties, single-premium credit insurance, and balloon payments. (Balloon payments are loans structured so that initial monthly payments are very low, but the principal continues to grow, and then a large payment is due all at once). Instead, Texas got a law that requires lenders to consider the borrower's ability to repay the loan, make clear that single-premium credit insurance is optional, and provide additional disclosures on loans over 12 percent. The bill also prohibits the refinancing of certain low-cost loans, like Habitat for Humanity mortgages. "There is still a lot to be done," said Schneider. "The most promising thing is that the legislature agreed to continue to research the issue for the next session." That research is needed because, in the past, lenders have refused to disclose information that would prove whether discrimination is taking place or not. The federal Home Mortgage Disclosure Act (HMDA) does provide enough data for advocates like Schneider to prove that minorities are being sold more expensive loans, but it doesn't answer why. That's because HMDA data does not include the borrowers' credit history. Lenders, therefore, when faced with charges of discrimination, can argue that borrowers in minority neighborhoods simply have worse credit histories. At a Texas Senate hearing on predatory lending held in Dallas last month, Ronald Abbott, chairman and chief executive officer of Peoples National Bank in Paris, Texas, was asked to explain why minority communities were charged more for loans. "I can tell you culture has a lot to do with it," he began. "There are cultures that are athletically inclined, and cultures that are intellectually inclined... ." He went on to explain very little about how his bank decides what interest rates will be charged and utterly failed to dispel concerns that the industry is racist. In a much-needed effort to clear this issue up once and for all, the state's consumer credit commissioner is attempting to supplement the HMDA data with borrowers' credit scores. That report is due by January of next year, in time for the next legislative session. "If all of the lenders cooperate, then we will finally know the extent of the problem," said Henneberger. "If they are telling the truth, and all of these borrowers have terrible credit scores, then we will proceed by offering more consumer education and worry less about regulation. But I doubt that will be the case. When Sen. West simply proposed last year to make it illegal to sell high-priced loans to individuals with good credit scores, the industry lobbyists were so scared that they had to pick their jaws up off the floor." Sen. Eliot Shapleigh, an El Paso Democrat, is gearing up to lead the charge against predatory lenders in the next legislative session. He said that banks in El Paso rarely make loans to local people, forcing them to go to finance companies, where they are charged as much as 2000 percent interest. "I think it is very important that families be productive, not pay interest with their paychecks," he said. He is holding hearings in El Paso at the end of the month and plans on proposing regulation next year. Shapleigh's concern -- that conventional banks are failing to market their services in minority communities -- is at the heart of the issue. For example, in Thompson's mostly black South Dallas neighborhood, eight of the top ten lenders are subprime, according to a study by Consumer's Union. In Fort Worth, four of five top refinance lenders for blacks are subprime companies; for whites, the top five are all prime lenders. Facts like these, said Schneider, prove that much more needs to be done to level the playing field. "The fair-lending act said you can't discriminate based on race," he said. "But that hasn't forced conventional lenders to suddenly serve the needs of whole communities. To this day, very few conventional lenders do outreach in minority communities."
Just as the last dinner plate at Thompson's house was scraped clean and stacked in the sink, Thompson answered a knock at the door. The visitor was Kimberly Olsen, a dark-haired energetic young woman bearing an armful of newsletters focusing on predatory lending in Texas. Olsen is the lead organizer at the Dallas chapter of ACORN, which is part of a coalition working to strengthen state law protections for subprime borrowers. (The group plans to start organizing in Fort Worth and Arlington next month.) NEXT » |
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