Top bank regulators acknowledged in Chicago last week that they were not pleased with some of the ways Associates First Capital Corp. treats its borrowers but were legally powerless to prevent its acquisition by banking giant Citigroup.
“We determined that, despite the fact that we were very troubled by the lending practices of the Associates, there was no statutory basis” to prevent the acquisition, said Stephen Cross, director of compliance and consumer affairs for the Federal Deposit Insurance Corp.
“I know it probably sounds extremely bureaucratic,” he said, after explaining that the FDIC had power to decide only whether Citigroup’s bank could acquire the banking entities of Associates, the nation’s largest consumer finance company, which critics denounced as an unscruplous lender that preyed on people with spotty credit histories. The Federal Reserve Board approved the complete transaction after Citigroup promised to strengthen consumer safeguards for home equity and other loans secured by real estate.
After touring Chicago’s Austin neighborhood, where so-called predatory lending is common, Cross and other regulators spoke Thursday about the Associates decision and their attempts to rein in such lending.
Their explanations did not go down easily with Gale Cincotta, whose National People’s Action group sponsored the tour and an evening hearing on the Community Reinvestment Act, which requires banks to equally serve all the communities in which they do business.
Cincotta is upset that despite CRA–legislation she helped create two decades ago–banks are not as prolific in lending to disadvantaged neighborhoods as predatory lenders are. A predatory loan takes many shapes, but typically saps borrowers financially by lending them more than they can afford to repay or by charging such high fees and interest rates that the loan becomes unaffordable. NPA says such loans have led to higher foreclosure rates.
“In Chicago, we used to call them juice loans, and the Mafia did them. These are legalized juice loans,” she told regulators.
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The FDIC and other regulators are reviewing the way they enforce CRA, and the meetings with Cincotta’s group–which are being held in several cities and include input from predatory lending victims and other community groups–provide preliminary data for that review.
Ralph Sharpe, deputy comptroller of community and consumer policy at the Office of the Comptroller of the Currency, the nation’s top regulator of banks, said the stories in each city tend to be the same, and that most predatory lenders are non-banks, which fall outside the OCC’s regulatory purview.
“But it’s a very complex problem, and to the extent that our institutions interact with those players, we may have a role to play,” Sharpe said.
The Fed is requesting comments on proposed rules that would make it harder for lenders, including non-banks, to engage in certain types of predatory lending.
Bank notes: The Web site iPlace.com, which is providing free credit reports online during January, has been overloaded with requests, making it impossible for some people to access their reports. The company issued a statement last week apologizing to consumers unable to get through. For security purposes, iPlace said, consumers who do not provide their exact name, address and other information–including credit card data, which also appears on the report that is generated–will not be able to view their reports.
– Annie Hall, the former lobbyist for Bank One Corp., has won one of three Republican Party nominations to run for City Council in Columbus, Ohio. In her acceptance speech, Hall, who is suing Bank One for age and gender discrimination, called two Democratic incumbents “second- and third-generation namesakes of true pioneers.”
Apparently casting aside thoughts of George W. Bush and her cherished old boss, former bank CEO John McCoy, Hall said, “I’ve had enough of the `son-ofs,’ and I hope you have too.”