Fed up with the lack of banks in their area, several South Side residents have banded together to create a community credit union, which they hope will provide an affordable alternative to currency exchanges and predatory lenders.
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Organizers are trying to raise $900,000 from financial institutions, foundations and government programs to launch a main office and five branches of the South Side Community Development Credit Union by the end of the year.
Branches are planned in the Douglas, Grand Boulevard, Hyde Park, Oakland and Woodlawn areas. People who live, work, go to school or worship in those neighborhoods, as well as six others on the South Side, would be eligible to join the credit union.
So far, people in the communities have pledged $855,500 in deposits for the new institution.
“The South Side has needed a financial institution like this for decades,” said Al Hofeld Jr., an attorney for the project and a National Association for Public Interest Law Equal Justice Fellow at the Legal Assistance Foundation of Metropolitan Chicago.
“For decades, these neighborhoods were redlined by banks, and following the recession and deregulation in the 1980s, a lot of them closed,” he said. “That created a market for currency exchanges in the 1980s, and now of course you’ve got the rise of predatory lending in many forms.”
Consumer advocates say that predatory loans–which are mortgages with onerous interest rates, fees and other terms–have led to scores of foreclosures, and that low-income and minority communities are disproportionately affected because they are most vulnerable to such loans.
One reason for the imbalance is that banks historically turned their backs on such neighborhoods, Hofeld said.
“Banks are making more of an effort now to reach out to the community, but most banks ignore poor people, while predatory lenders and currency exchanges exploit them to the hilt,” he said.
In the past, banks have argued that it is frequently not profitable to do business in low- and moderate-income areas, a claim Hofeld disputes.
“It’s a myth built on fear that poor people are too high of a lending risk. The successful community development credit unions around the country have proven they can do successful lending with low-income people,” he said.
Household proposal: Shareholders of Household International Inc. will decide at the consumer finance giant’s annual meeting Tuesday whether to link executive pay to corporate efforts to prevent predatory lending.
That is the thrust of a stockholder proposal by institutional investors Domini Social Investments LLC in New York and Northstar Asset Management Inc. in Boston.
Northstar filed a similar proposal last year, which was defeated by shareholders.
Prospect Heights-based Household has come under more scrutiny from consumer advocates and is the defendant in two lawsuits filed by customers in California and the Midwest who accuse the company of predatory lending practices.
Last week, New York State Comptroller Carl McCall said Household needs to “take drastic steps to reform its predatory lending practices.” McCall, who is seeking New York’s Democratic gubernatorial nomination, is the sole trustee of New York’s Common Retirement Fund, which holds 2.5 million Household shares.
Household officials say they do not participate in predatory lending and have put several measures in place–including lowering certain costs and increasing disclosures to customers–to improve lending practices.
The company recommends shareholders vote against the stockholder proposal calling for the board to study ways to link executive pay with anti-predatory lending efforts. Executive compensation guidelines already require officials to comply with laws, regulations and Household’s business principles, which include responsible lending initiatives, according to the company’s proxy statement.