Fair Finance Watch: Watchdogging & Taking Action from the South Bronx to United Nations

In 2010 Subprime Lending Grew More Disparate at Citi, Chase, Wells & BofA

NEW YORK, April 3 -- In the first study of the just-released 2010 mortgage lending data, Bronx-based Fair Finance Watch has found that the Big Four survivors of the banking meltdown, Citigroup, JPMorgan Chase, Wells Fargo and Bank of America, continued with high cost loans and had even worse disparities by race and ethnicity in denials and higher-cost lending than in 2009.

   2010 is the seventh year in which the data distinguishes which loans are higher cost, over a federally-defined rate spread of 1.5 percent over Treasury bill yields.

   The just released data show that Citigroup confined African Americans to higher-cost loans above this rate spread 3.67 times more frequently than whites in 2010, worse that its 2.25 disparity in 2009, Fair Finance Watch has found.

  Citigroup confined Latinos to higher-cost loans above the rate spread 2.92 times more frequently than whites in 2010, worse that its 1.72 disparity in 2009, the data show.

   JPMorgan Chase was even more disparate to Latinos, confined them to higher-cost loans 2.08 times more frequently than whites in 2010, worse than its own 1.98 disparity in 2009 and almost as pronounced as its 2.69 disparity between African-Americans and whites in 2010, worse than its 2.17 disparity in 2009.

  For Bank of America NA, the disparity for African Americans in 2010 was 2.59; for the largest of Wells Fargo's many HMDA data reporters, the disparity for African Americans in 2010 was 2.56.

   “Regulatory laxity, at least on fair lending, has continued despite the financial meltdown caused by this predatory lending,” said Fair Finance Watch. “When these four banks were allowed to buy up others with very little oversight, the regulators did not put any conditions on the mergers or Troubled Assets Relief Program bailouts.  These worsening disparities are the result.

   "Now it is not clear if the new Consumer Financial Protection Bureau will get to this problem. As things are going, it will be worse and more disparate in 2011. The disparities in the 2010 mortgage data of the Big Four further militate for aggressively watchdogging and breaking up these banks," Fair Finance Watch concluded.

  Regional bank Keycorp in 2010 confined African Americans to higher-cost loans above the rate spread 2.24 times more frequently than whites.

  U.S. Bancorp in 2010 confined African Americans to higher-cost loans above the rate spread 2.12 times more frequently than whites, and confined Latinos to higher-cost loans above the rate spread an even worse 2.2 times more frequently than whites.

   Huntington in 2010 confined African Americans to higher-cost loans above the rate spread 2.2 times more frequently than whites, and confined Latinos to higher-cost loans above the rate spread an even worse 2.8 times more frequently than whites.

Growing Southern bank Regions in 2010 denied applications by African Americans 2.56 times more frequently than whites. BanCorpSouth in 2010 denied applications by African Americans 2.6 times more frequently than whites.

  Fair Finance Watch has begun an enforcement project in the South, most recently raising issues under the Community Reinvestment Act on Hancock of Mississippi's application to acquire Louisiana-based Whitney, see “Flag raised on merger of Hancock, Whitney banks,” New Orleans Times Picayune, March 13, 2011.

   Fair Finance Watch has also been active in raising issues concerning Bank of Montreal / Harris and their proposal to buy M&I. In response, while the Federal Reserve Board asked some fair lending questions, the majority of the banks' response has been blacked out, which Inner City Press is challenging under the Freedom of Information Act.

   Using the 2010 HMDA data, Fair Finance Watch has commented that Bank of Montreal's Harris confined African Americans to higher cost, rate spread loans 2.35 times more frequently than whites.

  M&I Federal Savings Bank confined African Americans to higher cost, rate spread loans 2.1 times more frequently than whites. Bank of Montreal's Harris denied the applications of African Americans 2.35 times, and Latinos two times more frequently than those of whites. The Fed extended the comment period on the merger once, but now seeks to close it with the fair lending information still outstanding.

   Fair Finance Watch has submitted another timely comment, that Comerica, which is seeking to acquire Houston-based Sterling, in 2010 confined African Americans 6.26 times more frequently than whites to higher cost, rate spread loans. At Comerica, 11.3 percent of loans to African Americans were over the rate spread, versus only 1.9 percent of loans to whites.

   The law required that the 2010 data be provided by April 1, following March 1 joint requests by Fair Finance Watch and Inner City Press. Several banks did not provide their data by the deadline. Trustmark provided its data at the deadline but only in paper format, such that it could not yet be computer-analyzed. Further studies will follow: watch this site.

3/13/11 - “Flag raised on merger of Hancock, Whitney banks,” New Orleans Times Picayune

2/17/10 -- FFW in The Guardian (UK), Feb. 16, 2010, on Wells Fargo's subprime

4/2/09 -- Subprime Survivors Wells, BofA and JPM Chase Were More Disparate By Race in 2008 than Wachovia or Countrywide, Study Finds

7, 2008 -- First Study of 2007 lending data, disparities at Chase, Citigroup, WaMu, Wachovia, Bank of America and Countrywide, in run-up to Federal Reserve public hearings. Bank Beat: Disparities at targets National City and KeyCorp, US Bancorp's HOEPA loans

Housing group challenges Fed's Bear Stearns deal (Reuters of March 16, 2008)

Campaign advisers tied to lending crisis
(USA Today of April 2, 2008, re subprime Delta)

July 4, 2007 - 1st challenge to ABN Amro's proposes sale of LaSalle to Bank of America

April 10, 2007 - Subprime Racial Disparities By Banks in New York State Worse than at Countrywide, Which Settled Predatory Lending Charges in NYS in 2006

April 4, 2007 - First study of 2006 HMDA data and see, "Banks Prone to Sell Minorities Pricy Loans," Reuters / Washington Post

2006 - FFW study of mortgage lending in Detroit: Ameriquest, Citigroup

Some coverage (click here for more): “HSBC Faces Bid Challenge,” by Conal Walsh, The Observer, September 18, 2005

2005 -- FFW's Campaign against Riggs Bank’s cheap settlement for money laundering for human rights abusers, and the sale of Riggs to PNC - click here.

Also, on this site, FFW's analysis of Equatorial Guinea - click here

Navigate using the map below, on which the area names are links:

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 United States          FFW Campaigns    In Other Media      Non-USA/Global

         FFW researches, documents and advocates around financial firms' activities, and how they affect local communities. FFW files its findings with tribunals, regulatory agencies, and elsewhere, including on this Web site . Click here to view analyses of several multinational financial institutions' effects on consumers and the environment, worldwide: for two examples, Citigroup and HSBC. Click here for some initial brainstorming on the application of human rights and international law to the global financial services companies, and for citations (where possible, links) to resource material.  Click here for some September 2004 campaigns -- PNC/Riggs (Finance Watch Reports of August 16, 2004, onwards), J.P. Morgan Chase, etc..  Click here for an ongoing report on the campaign to reform anti-money laundering, tax haven, and bank secrecy laws.   Click here for the Human Rights Enforcement project, including its new (9/04) criminal justice and local human rights project.

2/05 -- FFW's Campaign against Riggs Bank’s cheap settlement for money laundering for human rights abusers, and the sale of Riggs to PNC - click here

Beginnings of a FFW initiative:

Human Rights & Finance: Predatory Lending in a Deregulated Network Economy

    If the biggest names in finance -- Citigroup, HSBC, General Electric and AIG -- have been engaged in predatory lending in the United States, there's a need for an inquiry into their behavior in less regulated economies internationally.

    An inescapable trend in this new millennium is the export of subprime lending models beyond the United States. Citigroup, following its acquisition of Associates First Capital Corporation in late 2000, began offering subprime loans to lower-income consumers in countries from Brazil and Mexico to India and Korea. The Hong Kong Shanghai Banking Corporation (HSBC) bought Household International a mere month after Household settled predatory lending charges with attorneys general in 42 states for half a billion dollars. In making the deal, HSBC chairman Sir John Bond said that the profits would come from exporting Household's model to the 81 other countries in which HSBC does business; a month later, HSBC announced it would compete in subprime with Citigroup in Brazil.

    From Australia through North America and back to Eastern Europe, General Electric, through its GE Capital unit, has developed a subprime lending capacity on which the sun never sets. The insurance company AIG has more quietly taken the subprime lending model of American General, which AIG bought in 2001, to the other countries in which AIG goes business.

    This consensus around high-rate lending in emerging markets by the world's largest bank (Citigroup), insurer (AIG) and corporation (GE) is indicative of the way in which corporate interests are currently out-stripping (or out-racing) regulation and the public interest. The lenders and their strategies are global, but the laws are at most national, and in some cases state-, county- or merely citywide. In the absence of meaningful regulation, lenders like Citigroup and Household view settlement agreements as a cost of doing business. Both have announced unilateral "best practices" commitments that are applicable by their terms only in the United States (or only in the geographic footprint of the consumers organizations with which they make the announcements). In the short term, there is a need to combat this race to the bottom, similar to anti-sweatshop campaigns and environmental advocacy. In the longer term, there is a need for meaningful global regulation, from a consumer and community point of view, of these emerging global lenders.

     Related to this inquiry is the view that predatory lending is not only a consumer protection and financial soundness issue -- it is also a human rights issue. This argument holds that various nations' signing of, for example, the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) require them to inquire into and act on the predatory lending that exists in, and is being exported into, their countries. Article 2(1)(d) of the ICERD, for example, requires that "[e]ach state party shall prohibit and bring to an end by all appropriate means, including legislation as required by the circumstances, racial discrimination by any person, group or organization." As explored below, and elsewhere, this may be one avenue to pursue accountability in global high-rate subprime lending.

    It is important to inquire into how -- and where, and at what interest rates -- global lenders exported predatory lending in the initial years of the 21st century: for example (for now), Citigroup, HSBC, AIG, Wells Fargo and GE.

A Sketched Historical Overview

     While the top end of the financial services industry has for many years been transnational, the second half of the 1990s saw a quickening of "globalization," of the expansion, via acquisitions, of financial firms based in what, from the 1950s through the 1980s, was known as the "First World: the United States, Europe, and Japan.

     Simultaneously, the financial services industries in these countries were being deregulated, best exemplified by the U.S. Gramm-Leach-Bliley Act of 1999, which allows the convergence of the banking, insurance and securities industry, and eliminated most requirements for prior regulatory approval for "overseas" acquisitions.

   From whence, then, will much-needed consumer, environmental and social protections come?  Existing supra-national institutions -- the World Trade Organization and the Bank for International Settlements, for example -- appear to have little interest in social regulation. These institutions perceive their mandate as being to "open," deregulated and standardize such things as accounting guidelines and capital adequacy standards in the Second and "Third" Worlds -- which, not unrelatedly, makes further penetration by the First World firms possible, even, inevitable. The United Nations, to date, has not been able to assert meaningful jurisdiction over multinational corporations, at least not in the financial industry.

     It is at this crossroads that the Fair Finance Watch works.   Click here for Overview Part 2: Lender Liability. For or with more information, contact us.

Some pages on this site are low / no graphics, for our dial-up friends in the developing world(s).

Also for More information, see:
Human Rights & Finance: Predatory Lending in a Deregulated Network Economy