When Paul Bellamy asked Charter One Bank to close its high-interest lending unit because he thought it discriminated against black customers, he admits that bank executives found the idea "amusingly presumptuous."
Bellamy, after all, is only the director of the Lorain County Reinvestment Coalition, a group agitating for banks to better serve poor and minority customers. Cleveland-based Charter One is the nation's 28th largest commercial bank, a regional powerhouse on its way to becoming a national one. "Their answer, of course, was no," Bellamy says ruefully.
Yet one year later, the bank announced it was "realigning" the unit, according to spokesman Stephen Phillips. That means Charter One is closing all nine of its high-interest lending branches. Mortgages for customers with less-than-perfect credit will now be handled through Charter One Bank itself, not a separate affiliate -- just as Bellamy so presumptuously requested.
Phillips says the bank's decision is unrelated to the concerns of Bellamy and other lending activists. "It's more a reflection of where the bank is headed today," he says.
Bellamy doesn't buy it. "Altogether, we won one," he says. "I don't care what they say."
Bellamy first questioned Charter One's two-tier system in April 2001. Data showed the bank rejected significantly more black customers than white, even when their incomes were comparable. Its separate unit, Charter One Credit, offered higher-interest loans -- and served much higher numbers of African Americans. Bellamy argued that the division was akin to "Jim Crow"-style segregation: Charter One Bank and its low rates for white customers, Charter One Credit and high rates for black ones. (See "The Bank of Jim Crow," August 16, 2001, at clevescene.com.)
High interest rates don't necessarily indicate predatory lending. If customers have damaged credit histories, the bank takes an extra risk in serving them and can ratchet interest rates up accordingly.
But watchdogs thought Charter One Credit's rates went beyond risk. Despite supposedly serving customers with near-perfect credit, the unit offered interest rates as high as 12.7 percent, according to court documents. Charter One officials conceded that they purchased loans with broker fees as high as two interest points. The practical effect: Customers buying a $100,000 home could spend $51,000 more over a 30-year loan, simply by taking out loans through the high-interest unit rather than the bank. Factor in disproportionate numbers of minority customers, and Bellamy was troubled.
The bank wasn't buying his argument last year, but the issue slowly began to gather steam. Cleveland officials met with bank executives to discuss their concerns in August, says Community Development Director Linda Hudecek. And when Charter One petitioned federal regulators for a national charter in January, activist groups filed objections that savaged the company's lending record.
The U.S. Office of the Comptroller, which regulates national banks, took the charges seriously, says spokesman Kevin Mukri. "We do a pretty thorough scrub," he says. The comptroller delayed the bank's application to allow time for an on-site fair lending exam, according to its report.
And while the comptroller finally approved the new charter in March, one-third of its announcement was devoted to addressing Charter One's lending to poor and minority customers. The comptroller found no evidence of discrimination, but promised to monitor future lending in poor and minority neighborhoods. As part of the approval, the bank even promised to establish a database to monitor broker fees.
But perhaps the biggest push came from the East Side Organizing Project (ESOP), a rambunctious community group based in the Union-Miles neighborhood known for its battles with predatory mortgage lenders. One Saturday in February, the group rounded up 65 members, rented a shark costume, and protested in front of the bank's Richmond Heights branch, demanding a meeting with bank brass. By Monday, says ESOP President Inez Killingsworth, the bank agreed to talk, and the two parties started hammering out a plan for Charter One to better serve the neighborhood.
In the meantime, ESOP released a study with its Chicago parent organization, the National Training and Information Center, criticizing Charter One and nine other banks. The study was unveiled at a Washington, D.C. press conference starring U.S. Senator Charles Schumer (D-New York). It also earned ESOP leaders an April meeting with U.S. Comptroller John Hawk himself to discuss their concerns.
So when the bank announced April 30 that Charter One Credit would close, activists saw it as their victory. They got exactly what they wanted -- and the assurance that bank-quality loans will go to both black and white customers.
"You toil away, you don't ever know what good it's doing, and then you get something like this," says Charles Bromley, executive director of the Metropolitan Strategy Group, a Cleveland Heights-based activist group that alone filed "six or seven" complaints about Charter One in the last five years.
Regulators agree that realignment could make a practical difference. Before, regulators examined Charter One Credit only for its impact on the company's bottom line, says Ruth Clevenger, an assistant vice president of the Federal Reserve in Cleveland. Higher-interest loans handled directly through the bank will face "stricter guidelines and oversight," Clevenger says. "You're going to get more consistency."
Estella Loar, the City of Cleveland's project manager for bank relations, says she hopes Charter One's one-stop plan could become a model for banks nationwide. Bank One has already sold off its high-interest unit, notes Bill Faith, director of the Coalition on Homelessness and Housing in Ohio. So has FirstMerit. First Union bought a high-interest lender and then sold it. "It's a combination of regulatory scrutiny, community pressure, and the downside of bad lending," Faith says. "It's given a lot of these companies pause."
Adds Bellamy: "We hope National City, Key Bank, and all the others who are running their own [high-interest] affiliates will look at this and see the issue has legs -- and decide they don't want to have to deal with it the way Charter One has had to deal with it."
If they aren't feeling the heat yet, ESOP is already revving up its next campaign. The group is planning to protest at CitiFinancial, CitiBank's high-interest affiliate. Members say the shark suit just may get another workout.
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