Speaking in broken English, Lee Vang recalls how he almost lost his home. The 47-year-old Hmong immigrant sits on a metal folding chair in the Spartanly furnished living room of his modest stucco home in the Midway neighborhood of St. Paul. The voices of his ten children, who range in age from seven to eighteen, can be heard coming from the basement.
"I'm a poor man," Vang says, smiling. "And I have too many children."
Vang, who came to this country in 1980, is employed as a factory worker. He makes eight dollars an hour working the graveyard shift. The family also receives $500 a month in government assistance because his wife, Ker Vang, is disabled and cannot work.
In September of last year, the Vangs received a check in the mail for $5,000 from Household Financial, one of the largest consumer-finance companies in the country. Intrigued, and in need of the money, the Vangs called Household to confirm that the check was really intended for them. According to Lee Vang, a company representative confirmed that the check was indeed theirs to keep. Not only that, but Household could get the Vangs a better deal on their home mortgage. At the time, the Vangs were paying eight-percent interest on a $67,000, 30-year fixed loan from U.S. Bank. Their monthly payment was a manageable $589, including taxes and insurance. During the first six years of the loan agreement, the Vangs had been late with their mortgage payment just three times, and never by more than 30 days.
The Vangs met with a Household official at the company's Maplewood office, where the couple signed a series of documents. Lee Vang remembers a whir of numbers, plenty of fine print, and assurances from the loan agent that they were getting a good deal. The Vangs left the office believing their debts and their mortgage would be consolidated into a lower monthly payment. When the Vangs received their first bill from Household, however, they found out that their new mortgage totaled $93,446, the interest rate was 13.8 percent, and their monthly payment had ballooned to $1,371--73 percent of the family's income.
"I think lack of sophistication or education is not an excuse to take advantage of somebody. And that's the bottom line," observes Ron Ellwood, who works with the Legal Services Advocacy Project in St. Paul.
As it turns out, the loan the Vangs agreed to included the $60,000 still outstanding on their original home loan, as well as $2,399 in credit-card bills. Other, previous loans were also lumped into the package: There was a $6,000, interest-free loan that the Vangs were originally required to pay back only if they sold their house or paid off their mortgage early; and an $18,000 home-improvement loan that would have been forgiven if the family stayed in the house for ten years. Finally, the Vangs were charged $6,954 in settlement costs. "I was mad," Lee Vang recalls calmly. "I trusted them."
"They took advantage of him because he can't speak very good English," claims Lee Vang's cousin Robert.
The Vangs are not the only family that has done business with Household Financial and felt cheated. The company has come under intense pressure in recent months from the Association of Community Organizations for Reform Now (ACORN), a national grassroots nonprofit advocacy group, for purportedly engaging in "predatory lending." There is no precise definition of the term, but it is generally applied to an array of dubious lending practices aimed at people with meager incomes or poor credit histories, often minorities or the elderly. If people can't pay, they lose their home.
In recent years financial institutions have become increasingly willing to lend money to borderline clients. According to a recent study by the Department of Housing and Urban Development, 13 percent of all new mortgages in 1998 were the result of sub-prime loans, compared with just 5 percent in 1994. (Sub-prime loans are those that carry a higher interest rate because the borrower is deemed a risk.) But with an increased access to capital comes the risk of exploitation. "We have just seen so many cases where there's been absolutely no benefit to people," says Jordan Ash, regional director of the ACORN Housing Corporation.
Since spring, ACORN's Minnesota chapter has searched property records in Ramsey County for mortgages prepared by Household, then contacted the homeowners to find out if they were mistreated. The nonprofit group has also started looking into deals made in Hennepin County. According to Ash, ACORN has since filed a dozen complaints about the company with the Minnesota Department of Commerce.
The nonprofit group is not alone. Since 1994, 76 written complaints have been filed against the company with the commerce department. The state agency has yet to take any punitive actions against Household, however. And commerce-department spokesman Bruce Gordon cautions that the high volume of complaints is not necessarily indicative of serious problems. "You have to consider how large a corporation that is," Gordon says. So far, Ash is satisfied with the agency's careful approach. "We're hopeful that they're going to do something against Household," he says.
The Household employee who devised the Vang's financing package no longer works for the company. Calls to the corporation's Maplewood office were referred to Household's headquarters in Prospect, Illinois, where two separate requests for an interview went unanswered. In the past Household has vehemently denied that it engages in predatory lending practices.
Because complaints of predatory lending are on the rise nationwide, there has been more scrutiny at federal, state, and local levels. In July the Senate banking committee held hearings on the issue. Various forms of legislation have been passed in municipalities such as Dayton, Ohio, and Philadelphia, Pennsylvania. North Carolina enacted a statewide ban on certain exploitative lending practices in 1999.
In the last two sessions of the Minnesota Legislature, bills aimed at curbing predatory lending have been introduced. They've gone nowhere. Supporters of such legislation have been unable to rally support from financial institutions that would be affected by the changes, so the Legislature has been reluctant to proceed. The version introduced this year by Rep. Gregory Gray (DFL-Minneapolis) and Sen. Sandy Pappas (DFL-St. Paul), would have mandated financial counseling for people applying for sub-prime loans that feature high interest or costly fees. It also would have prohibited certain lending practices, such as provisions that severely penalize borrowers who try to refinance a high-interest loan.
"The absence of affordable housing puts people in situations where they feel desperate about getting a home, about getting shelter, and often they take action in the short term that can have disastrous consequences," argues Gray.
Gray and other supporters of a clampdown on predatory lending concede, however, that improving the market for low-income individuals will not be easy. The chief concern in pushing legislative remedies is that the new laws will unwittingly discourage financial institutions from dealing with higher-risk but worthy borrowers. "We're not trying to impede commerce here, and we're not trying to impede access to credit," maintains advocate Ellwood, who has lobbied on behalf of the Minnesota bills. "But we're certainly trying to ensure that certain practices are legally prohibited."
When the Vangs realized what had happened, they paid another visit to their agent at Household. He refused to change the terms of the loan. The Vangs then turned to ACORN, which had helped them secure the original loan on their house. An ACORN official placed a call to Household on the family's behalf--nothing changed. Finally the advocacy group summoned some 20 protesters and showed up at the company's office in downtown St. Paul. Household finally agreed to alter the terms of the loan. The Vangs are now paying eight-percent interest on a $62,587 loan, covering only the remainder of their initial mortgage and credit-card bills. In addition Household forgave the initial $5,000 check that was mailed to the Vangs. The family's monthly payment is now just $464.
Household has taken other steps in recent weeks to try to improve their image. In July the company announced it was cutting pre-payment fees, lowering interest rates for customers who pay on time, and making it easier for borrowers to cancel insurance policies coupled with the loans. It will take much more to placate the critics.
"They're trying to repair their reputation," surmises ACORN's Ash. "But none of it really goes far enough."
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