Category: Personal Finance

Midland States Bank Criticized Over Minority Lending Practices

St. Louis Post-Dispatch, October 29, 2013

Only six black applicants were among the 1,503 St. Louis residents who sought home loans at Midland States Bank in the past four years, according to a community group seeking changes at the bank.  The St. Louis Equal Housing and Community Investment Alliance wants the Federal Reserve to require such changes before it approves Midland’s purchase of Heartland Bank in St. Louis.

Black applicants made up just 0.39 percent of applicants at Midland, according to the group’s analysis of federal racial lending reports.

“It’s standing out to us that they are not providing equal services to African-American communities,” said Alliance spokeswoman Elisabeth Risch. “We look at this and kind of see redlining as an issue.”

Redlining is the practice of refusing to lend in minority areas and is prohibited by federal rules.

By contrast, Heartland has a better than average record of minority lending, the Alliance says.

In an emailed statement, Midland CEO Leon Holschbach said the bank has “a 135-year history of serving its communities and has an excellent record in the areas of fair lending and community reinvestment, and we look forward to continuing this community involvement as we expand further into the St. Louis market.”

Midland, based in Effingham, Ill., has four branches in the St. Louis area: one in Chesterfield, two in Waterloo and one in Columbia, Ill. The Chesterfield and Waterloo branches are in census tracts with 0.1 percent black population. The Columbia branch tract is 0.4 percent black, according to Alliance figures.

Banks often lend money outside their neighborhoods. Risch says that in federal reports Midland defines its service area as including most of the metropolitan area, including the city of St. Louis. That area is 21 percent black, according to the Alliance.

The planned purchase of Heartland would give Midland a much larger presence in the St. Louis market, with 11 branches here. Heartland has $793 million in assets.

The purchase is subject to approval by the Federal Reserve. The regulators consider a bank’s record in serving minority and low-income residents as part of the approval process.

The Alliance wants the bank to locate branches in minority neighborhoods with low- and moderate-income populations, increase minority staffing, market to minority communities and develop products for low-income customers.

Federal loan data, examined by the Post-Dispatch, show blacks last year made up 0.8 percent of mortgage applicants last year at Midland in St. Louis. Nearly 400 applications were received from all consumers.

At Heartland, blacks made up nearly 8 percent of more than 3,000 applications.

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British Regulator Plans New Rules for Payday Lenders

New York Times, October 3, 2013

British regulators announced plans on Thursday to impose stiff new rules next year for payday lenders, whose business has grown sharply since the financial crisis.

The new rules in Britain will include requirements that lenders properly evaluate whether a consumer can afford such a loan and to limit the number of times the loan can be rolled over.  Lenders also will be required to provide consumers with sources of debt advice before refinancing.

Payday lenders also will be required to include risk warnings in advertisements, which have proliferated on British daytime television, many offering loans of up to £1,000 ($1,620) at a time.

Firms will face fines for violations of the rules.

The Financial Conduct Authority, which is set take over regulation of consumer credit firms in April 2014, said the proposed changes were intended to make promotions by lenders “clear, fair and not misleading.”

The move comes as regulators in the United States crack down on what they [say are] excess interest rates charged by payday lenders on such loans.

In August, the New York State financial regulator sent letters to 35 online lenders, instructing them to “cease and desist” from offering loans that violate local usury laws.  The federal Consumer Financial Protection Bureau has also been examining short-term, payday-style loans.

In Britain, short-term, high-cost lending has grown to an estimated £2 billion industry in 2011-2012, from about £900 million in 2008-2009, according to the Financial Conduct Authority.

Consumer advocates have complained that payday lenders have pressed consumers into taking out loans they cannot afford, locking them into a cycle where it is difficult to ever exit.

The archbishop of Canterbury, in a speech to the House of Lords in June, said the Church of England and other local institutions should work to develop an alternative system of credit unions, instead of payday lenders being the only alternatives for consumers.

“For the credit union movement to be successful and sustainable, and other forms of local finance to develop, we need a bottom-up movement of local organizations working to change the sources of supply,” said the archbishop, the Most Rev. Justin Welby. “It will take many years — 10 to 15 years — but it must start now.”

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Bank Regulator Tells Eagle Bank & Trust to Improve Service to Community

St. Louis Equal Housing and Community Reinvestment Alliance, August 2, 2013

Eagle Bank and Trust Company of Missouri has received a “Needs to Improve” rating on its Community Reinvestment Act (CRA) exam dated May 21, 2012.  The Federal Deposit Insurance Corporation (FDIC) released the CRA evaluations for banks that were recently evaluated on how services are meeting the credit needs of the community.

The St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA)
provided a public comment letter in March 2012 to the FDIC for consideration in Eagle
Bank and Trust’s CRA exam.  The comment letter detailed concerns with the bank’s
service to low- and moderate-income communities and minority communities.

SLEHCRA was concerned that the bank’s assessment area excluded portions of north
St. Louis City and north St. Louis County. Both of these areas have substantial
minority populations and low- and moderate-income communities.  SLEHCRA was
also concerned with low levels of lending to minority borrowers and communities and
urged the FDIC to conduct a thorough fair lending investigation.

According to Eagle Bank and Trust’s CRA examination, the FDIC found substantive
fair lending violations of the Equal Credit Opportunity Act and the Fair Housing Act.
The FDIC also found violations in how the bank designated its assessment area that
excluded low- and moderate-income census tracts. The FDIC revised the bank’s
assessment area to include all of St. Louis County, St. Louis City and Jefferson County.  SLEHCRA’s concerns are also detailed in the bank’s CRA examination.

This is the first time that the FDIC has given a “Needs to Improve” rating to a bank in
the St. Louis metro area since 1995.  SLEHCRA applauds the FDIC for taking steps to
better enforce the CRA.  In giving banks lowered ratings for poor performance, the
FDIC is ensuring that banks are held accountable for services provided to the
community, particularly communities that have been underserved by mainstream
financial institutions.  SLEHCRA hopes that the FDIC continues to conduct rigorous
CRA and fair lending exams and continues to take action on serious community
concerns related to bank performance.

Eagle Bank and Trust Company of Missouri is headquartered in Hillsboro, Missouri,
and operates 14 branches. The bank reports $893 million in assets. The FDIC’s Kansas
City regional office conducted the bank’s CRA examination, which is available online

SLEHCRA is a coalition working to increase investment in low- and moderate- income
communities, regardless of race, and in minority communities, regardless of income, by
ensuring that banks are meeting their obligations under the CRA and fair lending laws.
SLEHCRA regularly reviews bank performance and provides public comment letters
on CRA and fair lending performance.  All bank analyses and public comments are
posted online at

SLEHCRA also partners with banks to assist in developing strategies to better serve all parts of the community. SLEHCRA member organizations stand ready and willing to partner with Eagle Bank and Trust to help identify ways of improving performance to low- and moderate-income communities and communities of color.

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Editorial: Stop the Political and Economic Evil of Payday Lenders

St. Louis Post-Dispatch, August 11, 2013

In the payday loan industry can be found the full fruits of many of the political and economic evils that plague modern America. Joseph Pulitzer, founder of this newspaper, called it by its name 106 years ago: predatory plutocracy.

On Sunday and Monday of last week, the Post-Dispatch co-published, with ProPublica, the independent investigation journalism organization, an examination of the payday loan industry written by Paul Kiel. This editorial page has written a lot about the industry and its tactics in Missouri, but Mr. Kiel uncovered a rich bed of new sleaze.

When legislatures are full of fast-buck artists willing to allow predators to charge usurious interest rates to desperate people, when state regulators are underfunded, when Congressional Republicans gut financial regulatory reform, when the Supreme Court allows unlimited anonymous corporate campaign contributions and when the economy makes it harder and harder for the working poor to make ends meet, what you get is the payday loan industry.

And when that industry is run by people whose sense of personal morality is deeply flawed, what you have is a national disgrace.

The industry piously proclaims that it is just meeting a need for short-term credit for people who can’t qualify for it elsewhere. At 36 percent a year they might be meeting a need. At 400 to 1,400 percent, they should be carrying sawed-off shotguns.

Missouri, thanks to its compliant Legislature and its worst-in-the-nation campaign finance and lobbying ethics laws, has become a major hunting ground for the payday loan sharks. The average annual percentage rate on two-week payday loan in Missouri is 455 percent — 100 points higher than the national average. The average customer rolls it over 10 times a year. The signs on the stores might as well read “quicksand.”

The state is home to more than 1,400 stores offering high-interest short term payday loans and related products like high-interest installment loans and auto title loans.

Last year, after years of getting nowhere with the Legislature (a key member of the House Financial Institutions Committee had run Quik-Cash of Cabool), reformers mounted a petition effort to get a measure on the November ballot limiting interest rates to 36 percent a year. Mr. Kiel’s story details what happened next:

An organization called Missourians for Equal Credit Opportunity popped up, funded with $2.8 million from a front group called Missourians for Responsible Government. MRG was organized as a 501(c)(4) “social welfare” organization under Internal Revenue Service Code. This ploy, which became common after the Supreme Court’s 2010 Citizens United “corporations are people” decision, meant it could keep its donors’ names secret. It’s safe to assume the money came from the payday loan industry.

MECO created a bogus petition drive of its own to confuse voters. People gathering signatures for the actual reform petition found themselves hounded by paid activists. MECO filed three lawsuits trying to stop the petition drive and threatened churches who supported reform with legal action. Though churches aren’t allowed under IRS rules to take part in partisan politics, getting involved in social justice issues is part of their mission and entirely legal, though some pastors don’t know that.

A different organization called Stand Up Missouri, which represented installment loan companies, hired two prominent African-American political figures — former Missouri PSC chairman Kelvin Simmons, who also had headed the Office of Administration for Gov. Jay Nixon, and former St. Louis city lobbyist Rodney Boyd — to run interference with the African-American community. Though nearly a quarter of the victims of predatory lenders are black, everyone has his price.

It’s true that nobody puts a gun to someone’s head to make him take out a payday loan. They might as well; some 37 percent of payday loan customers surveyed by the Pew Charitable Trust said it made no difference how high interest rates were, they needed the money.

There are many reasons for this. A lack of personal responsibility is one of them. But so is a lack of education and basic financial knowledge. So is trying to keep afloat in an economy where jobs are scarce and low-paying and the deck is stacked.

Next year, reformers plan to try again to get a 36 percent rate cap on the ballot in Missouri. It deserves full and aggressive support. As a society, we owe our fellow man better than using him as chum for sharks.

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High-Cost Lending Industry Remains Powerful in Missouri

St. Louis Post-Dispatch (ProPublica) – August 2, 2013

As the Rev. Susan McCann stood outside a public library in Springfield, Mo., last year, she did her best to persuade passers-by to sign an initiative to ban high-cost payday loans. But it was difficult to keep her composure, she remembers. A man was shouting in her face.

He and several others had been paid to try to prevent people from signing. “Every time I tried to speak to somebody,” she recalls, “they would scream, ‘Liar! Liar! Liar! Don’t listen to her!’”

Such confrontations, repeated across the state, exposed something that rarely comes into view so vividly: the high-cost lending industry’s ferocious efforts to stay legal and stay in business.

Outrage over payday loans, which trap millions of Americans in debt and are the best-known type of high-cost loans, has led to dozens of state laws aimed at stamping out abuses. But the industry has proved extremely resilient. In at least 39 states, lenders offering payday or other loans still charge annual rates of 100 percent or more. Sometimes, rates exceed 1,000 percent.

Last year, activists in Missouri launched a ballot initiative to cap the rate for loans at 36 percent. The story of the ensuing fight illuminates the industry’s tactics, from lobbying state legislators and contributing lavishly to their campaigns; to a vigorous and, opponents charge, underhanded campaign to derail the ballot initiative; to a sophisticated and well-funded outreach effort designed to convince African-Americans to support high-cost lending.

Industry representatives say they are compelled to oppose initiatives like the one in Missouri. Such efforts would deny consumers what may be their best or even only option for a loan, they say.


Missouri is fertile soil for high-cost lenders. Together, payday, installment and auto-title lenders have more than 1,400 locations in the state — about one store for every 4,100 Missourians. The average two-week payday loan, which is secured by the borrower’s next paycheck, carries an annual percentage rate of 455 percent in Missouri. That’s more than 100 percentage points higher than the national average, according to a recent survey by the Consumer Financial Protection Bureau. The annual percentage rate, or APR, accounts for both interest and fees.
The issue caught the attention of Mary Still, a Democrat who won a seat in the state House of Representatives in 2008 and immediately sponsored a bill to limit high-cost loans. She had reason for optimism: the new governor, Jay Nixon, a Democrat, supported reform.

The problem was the Legislature. During the 2010 election cycle alone, payday lenders contributed $371,000 to lawmakers and political committees, according to a report by the nonpartisan and nonprofit Public Campaign, which focuses on campaign reform. The lenders hired high-profile lobbyists, and Still became accustomed to their visits. But they hardly needed to worry about the House Financial Institutions Committee, through which a reform bill would need to pass. One of the lawmakers leading the committee, Don Wells, owned a payday loan store, Kwik Kash. He could not be reached for comment.

Eventually, after two years of frustration, Still and others were ready to try another route. “Absolutely, it was going to have to take a vote of the people,” said Still, of Columbia. “The Legislature had been bought and paid for.”

A coalition of faith groups, community organizations and labor unions decided to put forward the ballot initiative to cap rates at 36 percent. The main hurdle was collecting the required total of a little more than 95,000 signatures. If the initiative’s supporters could do that, they felt confident the lending initiative would pass.

But even before the signature drive began, the lending industry girded for battle.

In the summer of 2011, a new organization, Missourians for Equal Credit Opportunity, or MECO, appeared. Although it was devoted to defeating the payday measure, the group kept its backers secret. The sole donor was another organization, Missourians for Responsible Government, headed by a conservative consultant, Patrick Tuohey. Because Missourians for Responsible Government is organized under the 501(c)(4) section of the tax code, it does not have to report its donors. Tuohey did not respond to requests for comment.

Still, there are strong clues about the source of the $2.8 million Missourians for Responsible Government delivered to MECO over the course of the battle.

Payday lender QC Holdings declared in a 2012 filing that it had spent “substantial amounts” to defeat the Missouri initiative. QC, which mostly does business as Quik Cash (not to be confused with Kwik Kash), has 101 outlets in Missouri. In 2012, a third of the company’s profits came from the state, twice as much as from California, its second-most-profitable state. If the initiative got to voters, the company was afraid of the outcome: “Ballot initiatives are more susceptible to emotion” than lawmakers’ deliberations, it said in an annual filing. And if the initiative passed, it would be catastrophic, likely forcing the company to default on its loans and halt dividend payments on its common stock, the company declared.

In late 2012, QC and other major payday lenders including Cash America and Check into Cash, contributed $88,000 to a group called Freedom PAC. MECO and Freedom PAC shared the same treasurer and received funds from the same 501(c)(4). Freedom PAC spent $79,000 on ads against Still in her 2012 losing bid for a state Senate seat, state records show.

MECO’s first major step was to back three lawsuits against the ballot initiative. If any one of the suits was successful, the initiative would be kept off the ballot regardless of how many citizens had signed petitions in support.


Meanwhile, supporters of the ballot initiative focused on amassing volunteers to gather signatures. The push started with umbrella organizations such as Metropolitan Congregations United of St. Louis, which ultimately drafted more than 50 congregations to the effort, said the Rev. David Gerth, the group’s executive director. In the Kansas City area, more than 80 churches and organizations joined up, according to the local nonprofit Communities Creating Opportunity.
Predominantly African-American congregations in Kansas City and St. Louis made up a major part of the coalition, but the issue crossed racial lines and extended into suburbs and small towns. Within a mile of Grace Episcopal Church in Liberty, a predominantly white suburb of Kansas City, there are eight high-cost lenders. “We think it’s a significant problem and that it was important for people of faith to respond to this issue,” said McCann, who leads the church.

Volunteers collected signatures at Roman Catholic fish fries during Lent and a communitywide Holy Week celebration. They went door-to-door and stood on street corners.

In early January 2012, some clergy opened their mail to find a “Legal Notice” from a Texas law firm sent on MECO’s behalf. “It has come to our attention that you, your church, or members of your church may be gathering signatures or otherwise promising to take directions from the proponents’ political operatives, who tell churchgoers that their political plan is a ‘Covenant for Faith and Families,’” said the letter.

“Please be advised that strict statutes carrying criminal penalties apply to the collection of signatures for an initiative petition,” it said in bold type. Another sentence warned that churches could lose their tax-exempt status by venturing into politics. The letter concluded by saying MECO would be watching for violations and would “promptly report” any.

Soon after the Rev. Wallace Hartsfield of Metropolitan Missionary Baptist Church in Kansas City received the letter, a lawyer called. Had he received the letter? Hartsfield remembers being asked. He responded, “If you feel like we’re doing something illegal, you need to try to sue, all right?” he recalls. Ultimately, no suits nor other actions appear to have been filed against any faith groups involved in the initiative fight.

MECO did not respond to requests for comment. The law firm behind the letter, Anthony & Middlebrook of Grapevine, Texas, referred comment to the lawyer who had handled the matter, who has left the firm. He did not respond to requests for comment.

Payday lenders and their allies took other steps as well. A Republican lobbyist submitted what appears to have been a decoy initiative to the Missouri secretary of state that, to the casual reader, closely resembled the original measure to cap loans at 36 percent. It proposed to cap loans at 14 percent but stated the limit would be void if the borrower signed a contract to pay a higher rate — in other words, it wouldn’t change anything. A second initiative submitted by the same lobbyist, Jewell Patek, would have made any measure to cap loan interest rates unlawful. Patek declined to comment.

MECO spent at least $800,000 pushing the rival initiatives with its own crew of signature gatherers, according to the group’s state filings. It was an effective tactic, said Gerth, of the St. Louis congregations group. People became confused about which was the “real” petition or assumed they had signed the 36 percent cap petition when they had not, he and others who worked on the effort said.

MECO’s efforts sowed confusion in other ways. In April 2012, a local court sided with MECO in one of its lawsuits against the initiative, throwing the ballot proposition into serious jeopardy for several months until the state Supreme Court overturned the lower court’s ruling. During those months, according to video shot by the rate cap’s supporters, MECO’s employees out on the streets warned voters who were considering signing the petition that it had been deemed “illegal.”

MECO also took to the airwaves. “Here they come again,” intones the narrator during a television ad that ran in Springfield, “Washington, D.C., special interests invading our neighborhoods.” Dark figures in suits and sunglasses can be seen descending from a plane. “An army of outsiders approaching us at our stores and in our streets,” says the voice. “But together we can stop them: If someone asks you to sign a voter petition, just decline to sign.”

Although the ad discloses that it was paid for by MECO, it does not mention payday lending or capping interest rates.


Installment lenders launched a separate group, Stand Up Missouri, to fight the rate-cap initiative — and differentiate themselves from payday lenders.
As the group’s website put it, “special interest groups masquerading as grass-roots, faith-based alliances” were not only targeting payday loans but also “safe” forms of credit such as installment loans. “Stand Up Missouri does not represent payday lending or payday interests,” the group said in its press releases.

Unlike payday loans, which are typically due in full after two weeks, installment loans are paid down over time. And while many payday lenders also offer such loans, they usually charge higher annual rates (from about 300 to 800 percent). The highest annual rate charged by World Finance, among the largest installment lenders in the country and the biggest backer of Stand Up Missouri, is 204 percent, according to its last annual filing.

Still, like payday lenders, installment lenders such as World Finance profit by keeping borrowers in a cycle of debt. Installment and payday lenders are also similar in the customers they target. In neighboring Illinois, 56 percent of payday borrowers and 72 percent of installment loan borrowers in 2012 had incomes of $30,000 or less, according to state data.

World Finance was the subject of an investigation by ProPublica and Marketplace in May. The company has 76 locations in Missouri: Of all high-cost lenders, only payday lenders QC and Advance America have more locations in the state.

Stand Up Missouri raised $443,000 from installment lenders and associated businesses to oppose the rate-cap ballot initiative, according to state filings.

To broadcast their message in Missouri, the installment lenders arranged a letter-writing campaign to local newspapers, placed ads, distributed video testimonials by satisfied customers, and held a rally at the Capitol. Like MECO, Stand Up Missouri also filed suit with their own team of lawyers to block the initiative.

Tom Hudgins, chairman of Stand Up Missouri, as well as president and chief operating officer of installment lender Western Shamrock, declined to be interviewed but responded to questions with an emailed statement. Stand Up Missouri acknowledges that “some financial sectors” may require reform, he wrote, but the initiative backers didn’t want to work with lenders.

“Due to their intense lack of interest in cooperatively developing market-based reforms, we have and will continue to meet with Missourians in all corners of the state to discuss the financial market and opportunities to reform the same.”

COMING MONDAY • The high-cost lending industry’s high-powered effort to influence African-American community leaders.

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High-Cost Lenders Work to Co-op African-American Leaders

St. Louis Post-Dispatch, August 5, 2013

In February 2012, the Rev. Starsky Wilson of St. Louis sat down at a table in the Four Seasons Hotel. The floor-to-ceiling windows revealed vistas of the city’s skyline. Lined up in front of him were two lobbyists and an executive, he remembers.

The meeting was part of an extraordinary counteroffensive by payday and other high-cost lenders against a ballot initiative to cap what such lenders can charge in interest and fees. Outspending their opponents — faith, labor and community groups — by almost nine to one, the industry had launched a multipronged effort, one that offers a rare view into the lenders’ try-anything tactics to stay in business.

The lenders had targeted a community that was both important to their profits and crucial to the petition drive: African-Americans. Wilson, like the majority of his flock, is black.

So were the two lobbyists. Kelvin Simmons had just a few weeks before been in charge of the state budget and was a veteran of Missouri politics. His new employer was the international law firm SNR Denton, now called Dentons, and he was working on behalf of Stand Up Missouri, a group representing installment lenders.

Next to Simmons was Rodney Boyd, also African-American and for the previous decade the chief lobbyist for the city of St. Louis. He, too, worked for SNR Denton.

The lobbyists and Tom Hudgins, a white executive with an installment lender, urged Wilson to rethink his commitment to the rate-cap ballot initiative.

Wilson was not swayed, but he was only one target among many. At the Four Seasons, Wilson says, he bumped into two other leaders of community organizations who had been summoned to hear Stand Up Missouri’s message. He said he also knew of more than a dozen African-American clergy who met with the lobbyists. Their message, that installment loans were a vital credit resource for middle-class African-Americans, was convincing for some. As a result, Wilson found himself mounting a counter-lobbying effort. A spokesperson for Simmons and Boyd’s firm declined to comment.

In Kansas City, the Rev. Wallace Hartsfield also received an invitation from the lobbyists — but that was not the only case, as Hartsfield puts it, of an African-American being “sent into the community to try to put a good face on this.”

Willie Green spent eight seasons as a wide receiver in the NFL and won two Super Bowls with the Denver Broncos. After he retired in 1999, he opened several payday loan stores of his own and went on to hold a series of positions serving as a spokesman for payday lending, especially to minority communities. While African-Americans comprise 13 percent of the U.S. population, they account for 23 percent of payday loan borrowers, according to a Pew Charitable Trusts survey. Green was “senior advisor of minority affairs” for the Community Financial Services Association, the payday lenders’ national trade group, then director of “community outreach” for Advance America, one of the largest payday lenders. Finally, in 2012, he opened his own consultancy, The Partnership Alliance Co., which, according to his LinkedIn profile, focused on “community relations.” Over the past decade, he has popped up during legislative fights all over the country — North Carolina; Georgia; Washington, D.C.; Arkansas; and Colorado.

It is unclear who hired Green in 2012 — he declined to comment, and Missourians for Equal Credit Opportunity (MECO), the state group formed to advocate for payday lending, did not report paying him or his company. But to Hartsfield, it was clear he was there on behalf of payday lenders.

Green once wrote an open letter to Georgia’s legislative black caucus arguing that government regulation on payday loans was unneeded and paternalistic: Opponents of payday lending “believe that people unlike them are just po’ chillin’ who must be parented by those who know better than they do what’s in their best interest,” he wrote, according to the Chattanooga Times Free Press.

During their private meeting, Hartsfield said, Green made a similar argument but also discussed church issues unrelated to the ballot initiative. The payday lending industry might be able to help with those, Hartsfield recalled Green saying. The message the minister received from the offer, he said, was “we’ll help you with this over there if you stop this over here.”

Green referred all questions to his new employer, the installment lender World Finance. In a statement, World did not address specific questions but said the company was “pleased to have Mr. Green as a member of its team to enhance World’s outreach to the communities that it serves and to provide him the opportunity to continue his many years of being personally involved in and giving back to those communities.”

Hartsfield did not take Green up on his offer, but the former athlete has served as a gateway to the industry’s generosity before. In 2009 in Colorado, where payday loan reform was a hot topic (a bill ultimately passed in 2010), Green presented the Urban League of Metro Denver with a $10,000 check on behalf of Advance America. Landri Taylor, president and chief executive of the organization, recalled that Green had approached him with the offer and that he was glad for the support. He also said that lending was not a core issue for his organization and that even if it were, the contribution couldn’t have bought its allegiance.

In Georgia in 2007, Green, then a registered lobbyist, gave a state lawmaker $80,000 a few weeks before the Legislature voted on a bill to legalize payday lending. The lawmaker, who subsequently pleaded guilty to unrelated federal charges of money laundering, was one of 11 Democrats to vote for the bill.

After the Atlanta Journal-Constitution broke news of the transfer, Green produced documents showing that it had been a loan for a real estate investment: The lawmaker had promised to repay the loan plus $40,000, but had never done so, Green said. The state ethics commission subsequently found Green had broken no state laws, because lobbyists are allowed to engage in private business transactions with lawmakers.


By the spring of 2012, supporters of the Missouri initiative were in high gear. Volunteers, together with some paid employees, were collecting hundreds of signatures each day. They were increasingly confident they would hit their mark.
In some areas, such as Springfield, the work resembled hand-to-hand combat. Through intermediaries, such as ProActive Signature Solutions, the initiative’s opponents hired people to oppose it.

“It was a well-funded effort,” said Oscar Houser of ProActive. He declined to say which company had retained ProActive. However, only MECO reported spending funds on what it said were signature gatherers. Those employees, according to Houser, eventually focused solely on trying to prevent people from signing the initiative.

Marla Marantz is a Springfield resident and retired schoolteacher who was hired to gather signatures for the 36 percent cap initiative. Just about every day, she could expect to be joined by at least one, and often several, of ProActive’s employees, she says. Wherever she went — the public library, the department of motor vehicles — they would soon follow. It was a tactic both she and her adversaries (with whom she became very familiar, if not friendly) called “blocking.”

“What we’re doing is preventing them from being able to get signatures,” one ProActive employee says on a video shot by a Missouri State University journalism student. Asked to describe how “blocking” works, the employee says, “Usually, we get a larger group than they have, we pretty much use the power of numbers.” In the video, Marantz is surrounded by three ProActive employees as she stands outside a public building.

ProActive’s employees did not identify themselves to voters as affiliated with payday lending, Marantz says. They sometimes wore T-shirts reading “Volunteer Petition Official” or held signs urging citizens to “Stand up for Equal Opportunity.”

Marantz shared photos and videos of her experiences. In one video, a library employee tells a group of ProActive employees they will be asked to leave if they continue to make patrons uncomfortable. At other times, Marantz says, exasperated public employees or the police simply asked anyone collecting signatures to leave the area.

The Rev. Susan McCann of Grace Episcopal Church in Liberty, Mo., also gathered signatures for the initiative and experienced “blocking.” “I had on my clerical collar, and they seemed to address a lot of their vitriol at me,” she remembers.

In May 2012, Missourians for Responsible Lending, the organization formed by supporters of the initiative, filed suit in county court in Springfield, alleging that MECO, through ProActive, was illegally harassing and assaulting its signature gatherers. The suit included sworn declarations by Marantz and three others who had said they had endured similar treatment, and it called for a temporary restraining order that would keep MECO’s employees at least 15 feet away.

MECO fired back. The suit was an unconstitutional attempt by supporters of the initiative to silence their political opponents based on alleged “sporadic petty offenses,” MECO argued. Even if the initiative’s detractors “engaged in profanity-laced insults all of the time,” they said, such behavior would still be protected by the First Amendment.

Houser called the suit “frivolous” and said he was happy to let MECO’s lawyers handle it. The suit stalled.

“Blocking” wasn’t the only problem initiative supporters encountered. Matthew Patterson ran a nonprofit, ProVote, that coordinated signature gathering in the Springfield area. On the night of April 25, 2012, Patterson put a box of petitions in his car. Then, realizing he had forgotten his phone in his office, he locked his car and went back inside.

When he returned, his passenger side window was broken and the box of petitions was gone, according to Patterson and the police report he filed. The box had contained about 5,000 voter signatures, about half of which were for the 36 percent cap initiative, Patterson said.

No arrest was ever made. Volunteers from Kansas City and St. Louis converged on the area to recoup the lost signatures. The final deadline to submit signatures to the Secretary of State’s office was less than two weeks away.

23,000 OVER, 270 UNDER

In August, the Missouri secretary of state announced that supporters of the initiative had submitted more than 118,000 valid signatures, about 23,000 more than needed.
But the state’s rules required that they collect signatures from at least 5 percent of voters in six of the state’s then nine congressional districts. They had met that threshold in five districts — but in the First District, which includes North St. Louis, they were 270 short.

A week later, initiative supporters filed a challenge in court, arguing that local election authorities had improperly disqualified far more than 270 signatures. MECO and Stand Up Missouri argued not only that signatures had been properly excluded but also that far more should have been tossed out.

Eventually, with only a couple of weeks before the deadline to finalize the November ballot, backers of the initiative decided they could not match the lenders’ ability to check thousands of signatures. They withdrew their challenge.

“It was so frustrating, disappointing,” McCann said. “People had spent hours and hours and hours on this initiative.”


The initiative’s supporters now have their eye on 2014, and they have made the necessary preparation by filing the same petition again with the secretary of state.
The industry has also made preparations. MECO has reported adding $331,000 to its war chest since December. Stand Up Missouri has raised $151,000.

Last May, Jewell Patek, the same Republican lobbyist who filed the industry’s initiatives in 2011, filed a new petition. It caps annual rates at 400 percent.

The installment lenders have continued their effort to woo African-Americans. In December, Stand Up Missouri was a sponsor of a Christmas celebration for Baptist ministers in St. Louis, and in June, it paid for a $20,000 sponsorship of the National Baptist Convention, hosted this year in St. Louis. It has retained the same high-powered African-American lobbyists and added one more: Cheryl Dozier, a lobbyist who serves as executive director of the Missouri Legislative Black Caucus. Lastly, Willie Green, according to initiative supporters who have spoken with the ministers, has made overtures to African-American clergy on behalf of the installment lender World Finance.

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Cordray’s Confirmation as Chief of CFPB Is Victory for Consumers

Senate Vote Ushers In New Era in Oversight of Lending Practices

New York Times, July 17, 2013

WASHINGTON — The Consumer Financial Protection Bureau was conceived by a Harvard professor, embraced by the Obama administration and pushed into law by Congressional Democrats determined to expand the federal government’s authority to protect borrowers from abusive lending practices — all in the space of just three years.

Richard Cordray was confirmed as the Consumer Financial Protection Bureau chief almost two years after his nomination.

But even after the agency opened its doors in July 2011, almost exactly two years ago, its legal authority remained uncertain so long as Republicans prevented the confirmation of a director to lead the agency, as required by law.

That barricade collapsed on Tuesday. Republicans agreed to allow the confirmation of Richard Cordray, by a vote of 66 to 34, cementing a new era of expansive federal oversight of companies that lend money to consumers.

Senator Elizabeth Warren, the Massachusetts Democrat who conceived the agency when she was a Harvard professor and supervised its creation as an Obama administration official, presided over the 66-to-34 confirmation vote, announcing the results with obvious satisfaction.

“It is a truly historic day,” Ms. Warren told reporters before the vote. “There’s no doubt that the consumer agency will survive beyond the crib. There is now no doubt that the American people will have a strong watchdog in Washington.”

Mr. Cordray, 54, and the agency are now set up to regulate interactions between borrowers and lenders, from the largest banks to mom-and-pop payday shops, and the terms of mortgages and student loans among other financial transactions.

He was confirmed one day shy of the second anniversary of his nomination by Mr. Obama. In January 2012, Mr. Obama installed Mr. Cordray at the agency when Congress was in recess, a move that the administration described as fulfilling the legal requirement for the agency to exercise the full measure of its powers. But some administration opponents did not agree.

Since then, the agency has begun to assert authority over nonbank financial companies, including mortgage and payday lenders, but its actions have been shadowed by uncertainty about the legality of Mr. Cordray’s appointment.

The Supreme Court agreed in June to hear a case regarding the legality of Mr. Obama’s recess appointments to the National Labor Relations Board. If the court rules against the administration, it would open the way for challenges regarding Mr. Cordray, who was appointed on the same day and in the same way. The vote on Tuesday, however, means any such ruling most likely would have limited consequences.

“Today’s action brings added certainty to the industries we oversee and reinforces our responsibility to stand on the side of consumers and see that they are treated fairly in the financial marketplace,” Mr. Cordray said in a statement.

Republicans had insisted they would block any nominee to lead the consumer agency, instead demanding that Democrats agree to eliminate the position and replace it with a board of directors. Forty-four Republican senators made that demand in a May 2011 letter, and 43 repeated it earlier this year.

Senator Rob Portman, an Ohio Republican, said Tuesday that he had agreed to allow a vote after speaking with Mr. Cordray in person on Monday night and again on Tuesday morning. Mr. Portman said that Mr. Cordray, who is also from Ohio, had promised to testify before the Senate Appropriations Committee, although the panel still would not have power over the agency’s budget. He also said that Mr. Cordray had promised to obtain cost-benefit analyses on proposed regulations. Mr. Portman and other Republicans said they would continue to pursue structural reforms of the agency.

The banking industry, which largely opposed the agency’s creation and then sought to prevent Mr. Cordray’s confirmation, found a silver lining on Tuesday in the prospect that the government would increase its oversight of other financial institutions.

“What we’re looking for now is full steam ahead to level the playing field between banks and nonbanks,” said Richard Hunt, president of the Consumer Bankers Association. He cited payday lenders and Wal-Mart as particular examples of the kind of nonbank lenders that banks would like to see subjected to additional regulation.

Mr. Hunt emphasized that his group had always been concerned about the agency’s structure, not about the particular choice of Mr. Cordray.

“I think it would have been much better for the American people” if the structure had been changed, he said. “But I think that train has left the station after today’s vote.”

Ms. Warren proposed the creation of a federal agency to protect consumers of financial products in a 2007 article, memorably arguing that the government put more effort into ensuring the safety of toaster ovens than the safety of mortgage loans. The idea resonated with Mr. Obama and his senior advisers, and it became a centerpiece of the administration’s proposal to overhaul financial regulation.

Mr. Obama named Ms. Warren to oversee its creation, and she brought in Mr. Cordray after he lost a bid for re-election as Ohio attorney general, where he had pursued a series of investigations of financial companies.

When Mr. Obama passed over Ms. Warren to nominate Mr. Cordray, she decided to run for the Senate instead. She has remained a vigorous advocate for the agency and for Mr. Cordray. “I can’t think how many times people said to me that this agency has no chance, none at all, that it will be killed in the crib,” she said. “I just couldn’t be more pleased.”

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Limiting the 401(k) Finder’s Fee

New York Times, June 22, 2013

Given the speed with which 401(k) accounts have been replacing pensions, workers can only hope that their employers have assembled a low-cost diversified portfolio that will keep earning money over time — perhaps a long time, given the number of people living to their 90s and beyond.

It is an employer’s legal duty, after all, to look after their employees’ interest in overseeing the accounts.

A series of lawsuits making their way through the courts have raised questions about whether employees are being overcharged for the accounts.

Experts say the suits and new federal rules have helped bring the fees down to a more reasonable level, and have prompted at least some employers to adopt less murky fee arrangements that more clearly separate what they are paying for investments and what it costs to administer the plan. But the fees workers pay can still vary widely and be hard to discern.

One recent lawsuit was brought on behalf of employees at Cigna by Jerome J. Schlichter, a lawyer whose success in similar cases has caused some anxiety among human resources executives. His firm, Schlichter Bogard & Denton, has brought 14 similar lawsuits over the last seven years on behalf of 401(k) plan participants. Typically, the suits claim that the employees were paying too much in fees. Several employee benefit experts have said that Mr. Schlichter’s cases and others have resulted in lower charges as other employers began to fear attracting lawsuits of their own.

“It’s unfortunate that it took litigation to focus attention on costs,” said Fred Reish, a lawyer with Drinker, Biddle & Reath in Los Angeles and an expert on the federal law that governs 401(k) plans. “But it clearly has.”

More recently, another force has been putting pressure on 401(k) fees, which typically include investment and administrative expenses. Last summer, the Labor Department started to require the companies that provide 401(k) plans to disclose more details on fees. Given the complex way these companies price their wares, the new rules are making it easier for employers to comparison-shop. (A separate rule required employers to provide more fee disclosures to employees.)

Benefit experts agree that because of the combination of forces, the cost of running and investing in the plans, on average, have been on the decline for several years.

According to BrightScope, a financial research company that tracks 401(k) plans, the total costs, including fees and administrative expenses, were 0.8 percent of assets in 2011. That’s down from 0.85 percent in 2009.

Still, workers can pay a fairly wide range of fees. Many plans cost between 0.2 and 1.8 percent, but some plans, particularly smaller ones, are more costly.

Fees can make a significant difference. According to the Labor Department, paying just 1 percentage point more in expenses over the course of 35 years could reduce a worker’s retirement savings by nearly 28 percent. Consider a worker with a 401(k) balance of $25,000 who earns 7 percent over the next 35 years. If this person paid 0.5 percent in fees, even if she stopped making new contributions, her account would grow to $227,000 at retirement. But if she paid fees totaling 1.5 percent, her savings would rise to only $163,000, or 28 percent less.

That kind of swing has been at the heart of most of the lawsuits brought by participants.

In Mr. Schlichter’s most recent case, a group of 401(k) participants say that Cigna, the employer, charged them excessive fees (Cigna was using proprietary investments for its own employees; that’s legal, but the fees need to be reasonable). On top of that, the workers say that the employer breached its fiduciary duty — in other words, failed to act in the employees’ best interests — when it sold its retirement division to Prudential in 2004.

Instead of shopping around to be sure the workers would get the best rates, their lawsuit says, Cigna lumped the plan with the rest of the assets it sold, and promised Prudential it could continue to manage their money for at least three years, according to court documents.

Cigna and Prudential dispute the lawsuit’s claims, according to a news release issued by Mr. Schlichter’s firm, which is based in St. Louis, and they said the plan had always been appropriately managed. The proposed $35 million settlement, filed in United States District Court for the Central District of Illinois, requires the approval of an independent financial expert and a judge, he said. The settlement would cover all people in the plan — which had more than $2.8 billion in assets as of 2011, with more than 42,000 participants — from April 1999 through May 31, 2013.

“In addition to the money, Cigna employees and retirees will now have a very attractive 401(k) plan to protect and build their retirement assets,” Mr. Schlichter said. The plan will have an independent monitor for three years, for example, and it will take competitive bids to ensure it is paying a fair price for administration.

Mr. Schlichter came to the world of 401(k)’s as an outsider. Though he said he had always represented workers and individuals, once he began to hear from more people who had concerns about their retirement plans, he started to investigate. “We then spent almost two years researching industry practices and talking to independent experts and fiduciaries about what was going on in 401(k) plans before filing a suit,” he said. “We came away convinced that some employees and retirees were paying excessive fees and were subject to conflicts of interest in the handling of their 401(k) plans.”

His most prominent case involved ABB Inc., a Swiss manufacturer of power equipment, whose workers sued their employer and Fidelity, the manager of the retirement plan, claiming excessive fees. A Federal District Court judge ordered that ABB pay $35.2 million in damages and that Fidelity pay $1.7 million; he said Fidelity and ABB were appealing the judgment.

He has also received settlements for employees and retirees at Kraft, Caterpillar, General Dynamics and the Bechtel Corporation, an engineering and construction company, among others, largely on grounds that the workers were paying too much, he said. He has had his share of dismissed cases as well, including a suit on behalf of employees at John Deere against Fidelity.

But even as the lawsuits and regulations help bring down fees in one part of the retirement plan universe, it is likely that financial services companies will find a way to make up for it. “If you start pushing the air out of the balloon in one place it will move to some other place,” said Mercer E. Bullard, an associate professor at the University of Mississippi School of Law and founder of Fund Democracy, an advocacy group for mutual fund shareholders. “There will be even more pressure to roll 401(k)’s over into individual retirement accounts when there is less and less of a reason to do so.”

Rolling over a 401(k) into an I.R.A. can be the right choice for many investors, particularly for people who leave an employer whose plan is filled with poor quality, high-cost investments. But for other people, it may make sense to remain invested in an old 401(k), if the employer has kept fees low. “All things being equal, an investor in a 401(k) should be able to get lower expenses because of the buying power of the plan,” said Bud Green, chief investment officer at MJM 401K, a consultancy in Phoenix.

As a March report by the Government Accountability Office found, 401(k) investors are sometimes pressured to roll their 401(k) into I.R.A.’s offered by the financial services company behind their 401(k).

“Plan participants are often subject to biased information and aggressive marketing of I.R.A.’s when seeking assistance and information regarding what to do with their 401(k) plan savings when they separate or have separated from employment with a plan sponsor,” the report said.

That’s one reason the Labor Department has turned its attention to better oversight of retirement plans. It is reworking rules that would reduce conflicts of interest when advisers provide advice in investments like I.R.A.’s. Members of the financial services industry, as well as some lawmakers from both parties, are trying to block those efforts, fearing it would put limits on the way they can do business.

“Many workers will rely solely on what they have saved in 401(k) plans and I.R.A.’s during retirement,” said Phyllis C. Borzi, the assistant secretary of labor, who oversees the department’s Employee Benefits Security Administration.

“It makes sense that people seek out investment advice. But when they do, they are often reaching out to people who are not accountable for the advice they give — particularly in the I.R.A. marketplace, where today there are few protections for investors. This needs to change.”

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‘Car-title Loans’ a Road to Deep Debt

Legislators Weigh Capping High-interest ‘Car-title Loans’

San Franciso Chronicle, May 4, 2013

The pitches sound enticing. “Need cash? Have bad credit? No problem. You can get a loan today by using your car as collateral – and you get to keep driving it.”

These “car-title loans,” also called “pink-slip loans” and “auto-equity loans,” are a booming industry in California, where 38,000 people took out $134 million worth in 2011, according to the Department of Corporations.

Anyone with equity in a car (meaning they own it outright or owe just a small amount) can get a short-term loan for up to half of the car’s value by pledging their car’s title (and often forking over spare keys) to secure the loan. Borrowers keep possession of their cars while they’re making payments.

But that quick cash comes with a steep price tag: interest rates that can top 100 percent a year, extra fees and the possibility of having the car repossessed.

While 31 states have outlawed car-title loans, a loophole in California law allows unlimited interest on some secured loans for more than $2,500. Now, consumer advocates, who call the loans predatory, are urging state legislators to take action, either to ban the loans outright or cap interest at 36 percent. The federal government implemented that same cap for auto-equity loans to military members.

“Car lenders say they have to charge so much because they’re high-risk loans,” said Rosemary Shahan, president of nonprofit advocacy group Consumers for Auto Reliability and Safety. “There’s no risk. They just show up and take your car if you don’t pay. They can resell it to recoup their costs.”

‘Nasty Attitude’

Shanell White understands the loan pitfalls well. When car repair expenses and the temporary care of her niece cut into her funds, White needed some quick cash for help with her rent.

“I looked on the Internet and came across car-title loans,” said White, who lives in Elk Grove (Sacramento County) and works for the state as an analyst. “I did a quick online questionnaire, and they called me back. I did the application and got the loan.”

Staking her 1996 Lexus, worth about $12,000, as collateral, she borrowed $3,900 at an interest rate of 80 percent a year. Payments came to $290 a month for three years, which she assumed covered interest and principal.

“I knew it was a high interest rate, but I figured as long as I paid what they told me to, I would be fine,” she said.

When she missed some payments, the company repossessed her car and charged her $1,400 to get it back. After three years, she figured she had repaid the loan, but when she asked for a payoff statement, the company said she still owed the original loan amount, she said. “Their attitude was very nasty. Everyone would tell me something different,” she said.

She missed some more payments and then woke up one day to find that the car was missing – the lender had towed it in the middle of the night.

“I called the company and they said there was nothing they could do unless I repaid the full amount” of the original loan, she said. The company sold the car in December and still sent her a bill for the loan amount.

“To me, it’s just modern-day loan sharking,” she said. “People are being taken advantage of.”

Cars as Lifelines

What’s particularly insidious, Shahan said, is that borrowers will make many sacrifices to keep making payments on the high-interest loans.

“People will hang on for dear life to their car because it’s their lifeline to get to work, medical appointments, school,” she said. In many cases, people who took out the loans would have been better off simply selling their cars and buying less-expensive ones, she said.

Assemblyman Roger Dickinson, D-Sacramento, chairman of the Assembly Banking Committee, has been holding hearings on auto-title loans. He introduced a bill last year to cap interest rates, but it failed to gain any traction.

“Next to home loans, they are probably the most secured type of loan one can make to a consumer,” he said. “It seems inconsistent that you have loans made with collateral that is worth well more than the amount of the loan, and yet the interest rates on these loans tend to be extraordinarily high. It’s hard to understand how interest rates that run to 150 percent or 200 percent can be necessary or justified.”

He said he plans to continue investigating the industry and will introduce legislation next year to rein in interest rates and fees, possibly encompassing other types of small loans.

Important Need

Loan companies did not return calls for comment. But in testimony before state legislative committees, Oscar Rodriguez, president of industry trade group Equal Access Auto Lenders of California and CEO of lender LoanMart, said car-title lending fills an important need for people with poor credit who can’t get loans from banks or credit cards because their credit scores are too low.

“We are a source when they need access to credit when the door is shut to them from every other place,” said Joe Lang, a lobbyist for Community Loans of America, which has 20 locations in California.

Dickinson said that outlawing the loans isn’t on the table.

“There is a legitimate need for products in this price range available to people who may not have recourse to other avenues of borrowing,” he said. “Our obligation is to make sure that when people do borrow, in any context, that they are treated fairly and reasonably, particularly in the small-loan category, where you tend to see people who are more desperate.”

Lang and Rodriguez say lenders charge high interest rates because they pay a premium for capital for customers considered risky, and shoulder big expenses for marketing, personnel and the overhead of maintaining storefronts.

“Yes, our interest rates are high, in some cases over 100 percent” a year, Lang said. But the industry’s profit margins are about 21 percent, slightly less than the 23.9 percent return that credit card companies get, he said.

Rodriguez testified that default rates range from the teens to 40 or 50 percent.

Capping the Rates

“We would like to see responsible loans, with rigorous underwriting of a borrower’s ability to repay the loan out of their income, taking into account income, debt and expenses,” said Paul Leonard, California director of the Center for Responsible Lending. “We would like to see fair pricing. It seems to me that for a loan that’s fully secured, 36 percent interest is a generous cap.”

Lenders have plenty of tools in their arsenal, he said.

“A lot of lenders put in GPS devices to track the cars,” Leonard said. “They also can install ignition auto locks – a remote-operated kill switch to prevent the borrower from starting the car” if they’re behind on loan payments. If lenders do repossess the car, California law lets them recoup those expenses as well, he said.

Car-title Loans

What: Small-dollar, short-term loans secured by the title to a borrower’s vehicle.

Who: 7,730 car-title lenders operate in 21 states. California had 58 car-title lenders with 781 locations in 2011.

Volume: Nationwide, car-title loans are about $1.6 million, but cost $3.6 billion in interest. Some 38,000 Californians took out $134 million in car-title loans in 2011.

Costs: The average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 of credit. A typical borrower receives cash equal to 26 percent of a car’s value, and pays 300% APR.

More information:

Source: Center for Responsible Lending, Consumer Federation of America, California Department of Corporations

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Coalition is Holding Banks Accountable for Meeting Communities’ Needs

The St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA) is a coalition of non-profit and community organizations in the St. Louis metropolitan area.  The organization works to increase investment in minority communities, regardless of income, and in low- and moderate-income communities, regardless of race, by ensuring that banks are meeting their obligations under the Community Reinvestment Act and fair lending laws.

Consumers Council of Missouri actively participates in SLEHCRA.

To learn more about the Community Reinvestment Act click here.

To see SLEHCRA’s fair lending reports click here.

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