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Predatory lending: A study in the "business" of democracy
by Jeff Horwich, Minnesota Public Radio
November 3, 2003

St. Paul resident Paul Satriano got caught up in a predatory lending scam when he refinanced his home, and calls the fight for new laws a "very uphill" battle. Bankers and lenders say new laws would make it harder to extend legitimate loans to customers like Satriano. (MPR Photo/Jeff Horwich)

The word "business" does not show up in most of our basic ideas about American democracy: "One man, one vote;" "All men are created equal;" "Government of the people, by the people, and for the people." But few would deny business interests have come to play a big role in the democratic system. Some say too big. One segment of the business community has played a complex and controversial role in shaping one recent Minnesota issue: predatory lending.

St. Paul, Minn. — Paul Satriano began his adventure in politics when he refinanced his mortgage. Satriano lives in east St. Paul, and keeps the books for a local Holiday Inn. Three years ago, the company holding his car loan repeatedly pitched him on refinancing his one-hundred-ten thousand dollar home.

	"Signs" of trouble...

"Finally, one time we said, 'Maybe we can use it to pay off our credit cards,'" Satriano says. "So that's what we did."

Satriano and his wife wound up with a 50 percent jump in monthly payments, big prepayment penalties, and extra life insurance they didn't want or need. The grand total paid off on the credit cards: $300.

This year Satriano won a battle, but lost the war. The lender, Household Finance, settled a lawsuit brought by 35 states, and Satriano will receive about $2,000. But in the meantime, thanks also to some deaths in the family, he declared personal bankruptcy. The home he fought to protect is now up for sale.

	Becky Gomer, left, and Jordan Ash of ACORN

The fight has also been rough on the political front. Satriano joined up with the Association of Community Organizations for Reform Now, also known as "ACORN," an activist group pushing for stricter regulation of high-interest loans. Their proposed legislation would prohibit certain loans if the homeowners' income indicates they cannot repay it. They would cap the fees lenders could collect on such loans, and require all loan applicants to receive a written statement strongly urging them to run the paperwork by an independent loan counselor.

So far ACORN's efforts have stalled at the state Capitol and the Minneapolis city council. Jordan Ash, director of ACORN's housing program, says business interests are standing in the way.

"Predatory lending, perhaps more than other issues, really exemplifies that," Ash says. "On one hand you have groups like ACORN, the AARP, Legal Aid, the Senior Federation representing consumers and the interests of ordinary people. And the only groups opposing it were bankers and industry trade groups from the mortgage industry. And in terms of who has more power, it was very clear that they did."

	Don't Borrow Trouble advertises in print, radio, and TV

ACORN's executive director, Becky Gomer, says when it comes time to lobby and testify, that power comes from one important edge: deep pockets.

"They're paid hundreds of thousands of dollars and they bill by the hour, some of these lawyers that are down there and can afford to go down there," Gomer says. "Our members have to take off work and have to schedule baby sitters and have to get rides."

Minnesota ACORN has a total yearly budget of about $300,000. One group on the other side of the table, the Minnesota Bankers Association, spent about half that amount just on lobbying state government in 2002, not including salary expenses.

But lobbyists for the banks and lenders see themselves contending with an emotional advantage held by the activists. Eric Ewald lobbies for the Minnesota Mortgage Bankers Association.

	Eric Ewald, Minnesota Mortgage Bankers Association

"Cases like the ones they bring up, some of them are certainly tragic," Ewald says. "When you put a face to a problem it's very dramatic, and that can have an impact on people. At the end of the day, I think policy makers need to be, and often are, objective."

Ewald says his association condemns all deceptive lending practices, and the vast majority of lenders have nothing to do with so-called "predatory" tactics. But banks and lenders argue more regulation would stifle their ability to offer loans to people with less-than-perfect credit.

Lobbyist Steve Johnson of the Minnesota Bankers Association says the fact that Satriano and others won their recent legal settlement shows existing laws are sufficient, and more enforcement is what's really needed. Even if his members' reputations are squeaky clean, Johnson says everyone stands to lose if activists push through confusing, unnecessary laws.

	Steve Johnson of the Minnesota Bankers Association

"Passing something that's already illegal to make it illegal doesn't make sense to us. In our minds that would create more red tape, more regulation, which would add costs and ultimately gets passed down to the consumer," Johnson says.

As an example of progress on the issue, Johnson points to "Don't Borrow Trouble," a public service campaign bankrolled by the industry to make consumers aware of deceptive lending practices. He says Don't Borrow Trouble is one thing business interests and activists can agree on.

"I think where we have common ground and where we've seen there have been some lacking areas, or areas that need shoring up, if it was education or communication for example, that we've all stepped up and participated," Johnson says.

All sides do consider Don't Borrow Trouble a step forward. But State Senator Sandy Pappas, DFL-St. Paul, says at the same time as bankers and lenders were crafting the education campaign, they skillfully played the political game to prevent any new legislation at the Capitol.

Pappas says bankers and lenders were relatively quiet as her lending bill, endorsed by ACORN, unanimously passed the DFL-controlled Senate. Before being introduced in the Republican House, the bill went through a so-called "pre-conferee process." This is a series of informal, invitation-only discussions designed to achieve some sort of consensus.

But Pappas says this is when lobbyists moved in to kill the bill, including one from Washington, representing the lender "Ameriquest," who flew in on the very last day of discussions.

	Sen. Sandy Pappas, DFL-St. Paul

"They basically came in to kind of stop the process, and they succeeded in doing that," Pappas says. "Because they brought up so many issues that we'd already resolved and already dealt with, and ultimately ran out the clock."

Pappas calls the pre-conferee process "inherently undemocratic," because business and other interests can kill or influence legislation before it gets a public hearing. "It's very difficult when you're trying to regulate and the regulatee, the entity that is being regulated, has to agree," Pappas says. "That seems to me to be a basic conflict of interest."

Representative Jim Rhodes, R-St. Louis Park, disagrees. Rhodes makes his living as a nonprofit credit counselor, and has tried to shepard the predatory lending bill in the House.

"The business community, the unions, the activists, everybody has an involvement in governing," Rhodes says. "And that's why I felt that we could bring them all to the table and say what's in the best interest, let's get something passed that we can all agree on."

To Rhodes, activists and lenders share equal blame for the collapse of discussions. "Frankly, at times I want to say, 'Look children, let's all go into a room and not come out until we learn how to work together. When you have diverse agendas and they don't want to compromise, that makes it hard."

With the issue on hold at the Capitol, the Minneapolis City Council has become a second front in the predatory lending debate. The city's enforcement power is limited, and any action would be largely symbolic. But activists believe the 13-member body is closely split. On one side is Democratic Councilman Don Samuels, who chided banking lobbyists at a hearing this summer, saying "you haven't done enough."

	Councilman Don Samuels

Samuels is unapologetic in his belief that the interests of business should take a back-seat to those of vulnerable citizens.

"I live among the poor. I advocated among the poor before coming here," Samuels says. "When a sophisticated advocate for the interests of business, which conflicts with the interests of the poor or disadvantaged people, comes in and lobbies me, there's an internal debate going on for everything he says."

In the office next door, fellow Democrat Barb Johnson says there's "no doubt" the city can play a role in stemming predatory lending, most likely through education campaigns. But she is leery of any measures that might alienate upstanding banks and lenders.

	Councilwoman Barb Johnson

"How healthy a community would you have if you don't have any business interests in it? Not very healthy. So it's in my community's interest to have an active banking presence, just like it is to have an active grocery presence. It's an important part of how a neighborhood functions," Johnson says.

After intense lobbying at City Hall, the proposed Minneapolis ordinance fell through. Instead a series of work-groups were created. The banks and lenders won another round, but the issue is far from over. Predatory lending victim Paul Satriano, sitting in the house he's about to sell, hardly sounds defeated. "It's going to take a while," he says, "but we'll do it."

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