Race, Poverty and the Aggressive Practices of Predatory Lenders:
My Experience on the Predatory Hotline

Today’s society is plagued with fancy images of lawyers on TV shows like The Practice and Law & Order. Lawyers are often perceived as having a life full of glitz and glamour. However, in the real world there is no glitz or glamour, just satisfaction of helping others that cannot help themselves. Public interest law is a grassroots approach to the law that prides itself on helping low-income individuals. Public interest law offers a person, who is up to the challenge, a chance to help people who do not have ready access to the legal system. A legal aid lawyer must constantly come up with new strategies to combat oppression and has a responsibility to represent low-income communities including communities of color.

An interlocking system of oppression exists in low-income neighborhoods between race and poverty. Not only are people living in substandard conditions, but those same people are dealing with discrimination and more particularly, discrimination in lending practices. It is not enough that low-income communities experience hardships in day to day life, but individuals of color have a tougher time on the basis of race, ethnicity, and language barriers. To a person in these communities something as simple as getting a loan can become a dangerous situation that results in the loss of property.

Within Legal Services and my work on the Predatory Hotline this summer I examined race and racial discrimination in housing and lending practices in the City of Philadelphia. I worked at Philadelphia Legal Assistance (PLA) on the “Don’t Borrow Trouble Hotline.” The Hotline works with clients that experience problems with their mortgages, face foreclosure, or are involved with predatory lenders. The Hotline helps by referring clients to Housing Counseling Agencies and attorneys who assist clients with alternative solutions to foreclosure or predatory lending situations. The Hotline receives over 25 calls each day and has several clients that come during general intake to meet with Hotline staff. The Hotline is funded through the Office of Housing and Community Development (OHCD) and is designed to offer advice and provide a temporary solution for a mortgage related problem. My main focus this summer has been Predatory Lending practices and its effect on low-income communities of color.

Predatory lending is, “a mismatch between the needs and capacity of the borrower. The underlying needs for the loan are not being met or the terms of the loan are so disadvantageous to that particular borrower that there is little likelihood that the borrower has the capability to repay the loan.” Lenders tend to target people who may not have the necessary tools to understand what is happening and could ultimately lose their home. Lenders mainly target elderly African American womn. African Americans are almost four times as likely to be slotted into bad loans as whites. Even after accounting for income, loan amount, and differences between deposit taking banks and non-depository independent mortgage companies African Americans still end up with the worst deal.

Before the Civil Rights legislation, and even after, African Americans had difficulty obtaining loans. In a practice called redlining, residents were denied credit to specific geographic areas due to the income, race or ethnicity of its residents. “The term ‘redlining’ is derived from the actual practice of drawing a red line around designated areas in which credit is to be denied.” Reverse redlining occurs when those same communities that were once denied are now offered credit at unfair terms. According to the Home Mortgage Disclosure Act of 1975 it was reported that, “urban areas of heavy minority concentration are being disproportionately serviced by sub prime lenders. In these neighborhoods sub prime lenders control nearly two – thirds of the home improvement market. Even clients with perfectly good credit get pulled into loans with extremely high interest rates if they live in low income neighborhoods. The victims of these lenders do not have ready access to mainstream credit. Clients call the Hotline with reports of interest rates as high as 17%, and in most cases they were not aware of this until after they signed the settlement papers. Underneath this problem of predatory lenders targeting low-income individuals of color is simply racism.

Residents in these neighborhoods are typically targeted because they are not aware of loan options or they fall prey to the deceptive practices of these lenders. It is not uncommon to hear that clients have conducted their loan business in a car, in their own homes, or an apartment posing as an office. Clients have been mislead and misinformed about the real terms and conditions of the loan. Clients came into the office or called on the phone saying that they were told that they had to sign papers or “else.” Part of the real tragedy though is that some of these people don’t need the money, but rather are talked into repair loans and such that were somewhat optional and not an emergency. People just want to get something nicer after working so hard so long. Some clients just need extra money to pay of pre-existing debts and are willing to sign anything not realizing they are jeopardizing the ownership of their home.

In an effort to combat predatory lenders the city of Philadelphia started a new program called the “Phil-Plus” and the mini-Phil loans. The city plans to offer home improvement loans at fixed low interest rates to individuals that may have bad credit or no credit. The program is new and only offers 175 loans to people who meet the income requirements. The loan is supposed to be used strictly for home improvements but up to 50% can be used for paying off pre-existing debts. The loan can only be obtained if the client seeks and receives counseling from a Housing Counseling Agency. Only in an emergency, such as a roof collapse, may a client go directly through the bank. This program may be beneficial in stopping the discriminatory effects of predatory loans.

Another way of combating this problem is through the use of the Fair Housing Act. A FHA violation can be demonstrated by showing either direct discrimination or discriminatory effects. Unfair lending practices that target African Americans or the elderly indeed have a discriminatory effect. As this practice continues to flourish more people face mortgage foreclosures each year and that as a whole affects the African American community. Philadelphia Legal Assistance is going in the direction of direct representation in raising race discrimination claims. Although the FHA is not the only way to combat predatory lenders it is innovative and speaks directly to the problem of racial discrimination which is prevalent in low-income communities. With new ideas and ways to advocate emerging there is a chance for predatory lenders to be stopped and civil rights to be upheld.