Human Rights & Finance: Predatory Lending in a
Deregulated Network Economy
by Matthew Lee,
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
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. (Click here to further contact information).