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July 12, 2000
Shareholders Vote on Predatory Lending
Associates First Capital, the largest subprime lender in the U.S., has become a lightning rod for
concerns about predatory lending practices.
SocialFunds.com --
Predatory lending, generally charging unfairly high interest rates and fees for loans targeted to
low-income, elderly, and minority communities, may involve $100 billion nationwide, or half of all
subprime lending. Associates First Capital, the largest subprime mortgage lender in the U.S.
lending about $9 billion per year, stands to become a prominent test case on this issue.
 In May, shareholders of Associates First
Capital voted more than 44 million shares, or 9 percent, in favor of a resolution asking the
company to develop and enforce policies to thwart predatory lending. More recently, it was revealed
that the Irving, Texas-based financial company will be the subject of a civil law suit filed by the
U.S. Justice Department based on broker practices that discriminated against minorities.
"The predatory practices that people are working to stop are not liberal or conservative
issues, but issues of fairness and common sense," said David Berge, President of Vermont-based
Underdog Ventures. "Blatant abuses that target those most vulnerable to exorbitant fees, prepayment
penalties, and mandatory insurance have those in the socially responsible investment industry
taking note."
Berge is also President of the Social Investment Forum (SIF), the trade
association for professionals and institutions working in the area of socially responsible
investment. SIF has launched a national campaign to promote community investment, including an
effort to raise awareness about and stem the rising tide of predatory lending.
The
shareholder resolution with Associates First Capital was one of three predatory lending resolutions
proposed by shareholders this year, but was the only one to come to a vote. The other two, at
Household International and Conseco, were omitted by the Securities Exchange Commission (SEC), the
regulatory agency for corporate shareholder proceedings.
A similar shareholder resolution
at Associates First Capital last year was omitted by the SEC, which ruled that "general conduct of
a legal compliance program" was considered an "ordinary business" question. The predatory lending
resolution was not omitted again this year, and received a 9 percent vote of support that will
allow its resubmission next year, representing a momentous step in the shareholder activism
process.
"The significance of the resolution is not just in the number of votes but in
engaging shareholders on this issue," said Berge. "We believe that this kind of dialogue, and
exposure of unfair practices nationally will heighten awareness and encourage people to act."
Perhaps Associates First Capital will receive more than its share of awareness, if the Justice
Department pursues its lawsuit based on an investigation of discriminatory lending practices in the
Detroit area. Broker-partners affiliated with the finance company allegedly charged
African-American loan applicants more than white borrowers with similar backgrounds, and
systematically gave black applicants relatively lower credit ratings.
Associates First
Capital defends its lending record, charging that the investigation focused on a handful of
affiliated brokers and was not representative of their services. If the Justice Department lawsuit
is brought, it would mark the first time that a mortgage lender has faced a suit alleging
violations of federal laws for underwriting decisions of its broker-partners.
Whatever the
fate of the Justice Department lawsuit, Associates First Capital will continue to be the focus of
investor and consumer attention on the issue of predatory lending. While subprime lending fills an
important need in the banking industry, unethical practices victimizing minorities and the elderly
are of great concern to social investors and society as a whole.
©
SRI World Group, Inc. All Rights Reserved.
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