“Predatory lenders will use [under-resourced family’s] often desperate circumstances to take advantage and overcharge them. Once these families get into debt, it is nearly impossible for them to support themselves,” says Catherine Landers, program manager of North Kent Connect
, a nonprofit dedicated to “improving the lives of all people in northern Kent County by providing access to basic needs and promoting economic independence.”
A Consumer Financial Protection Bureau
report states that in the U.S., there are up to 100 million “low-income and economically vulnerable...people, many of whom are unbanked, underbanked, or have thin or no credit files.” This limited credit history makes it challenging to secure financing. The Bureau highlights some of the biggest barriers to access for these individuals, which include a “lack of general understanding about credit and the type of loans that would be most useful; lack of knowledge about how to correct their credit reports or improve their scores; and a general perception that the credit system is inaccessible to them.”
Due to these concerns, many people feel forced to turn to non-traditional, often predatory, lending alternatives. Typically, people may think of payday advances, automobile loans, or mortgages with exorbitant fees and high interest rates. These days, however, these are not the only types of predatory practices that exist.
“We work with clients who often have little or no savings to rely on when looking to purchase a home or move into a new rental. This leaves them vulnerable to both payday-type lenders as well as getting stuck in housing complexes or mobile home parks with predatory practices,” says Landers. Though predatory lending has a far-reaching impact, local organizations and professionals, like Landers, are working to prevent this type of lending from taking place, and to repair the finances of those whose lives have been negatively impacted by these practices.
Defining predatory lending
According to the National Association of Community Advocates
, predatory lending is defined as “any lending practice that uses deceptive or unethical means to convince [borrowers] to accept a loan under unfair terms or to accept a loan that [they] don’t actually need.” In addition to the practices used to entice borrowers, predatory loans are commonly used to target specific populations, including “minorities, the elderly, the less educated, and the poor.”
Filed in 2015, Wells Fargo is facing a lawsuit alleging the financial institution used “racially discriminatory mortgage lending practices against African-Americans and Hispanics.”
The article states that the bank “systematically provided more expensive and higher risk loans to African-American and Hispanic borrowers...who qualified for the more favorable loans that the bank offered to white borrowers.”
“Predatory lending creates vicious cycles for folks with already very small economic margins of error,” says Joel Ruiter, executive director of Home Repair Services of Kent County
, a nonprofit that “strengthens vulnerable Kent County homeowners because strong homeowners build strong communities.” “[These individuals] often see these arrangements as their only solution at a time of urgent need and then enter into the agreements with little knowledge as to how difficult repayments truly become. This type of debt service then becomes a revolving expense like the electric or gas bill with no termination possibilities. It leads to even smaller margins of error and greater hopelessness.”
In addition to the added financial strain on households and the increase in foreclosure rates amongst these borrowers, communities as a whole suffer as well.
It can be easy to think of the effect of predatory lending on borrowers. However, the ripple effect of these loans extends well beyond the borrowers. The high rates and fees can lead to a loss of disposable income, or wealth-building potential. Less disposable income means fewer funds to invest in the community and local economy.
According to the Center for Responsible Lending
, more than 12.5 million homes went into foreclosure between 2007 and 2012. During this time, it was estimated that, as a result, minority neighborhoods had lost or would lose $1.1 trillion in home equity, equating to $23,150 in household wealth.
The Consumer Financial Protection Bureau
highlights “barriers to housing and employment” as additional considerations. The litigation related to the Wells Fargo case cites “increased homelessness, a decline in physical and mental health for stressed borrowers ... the deterioration of schools” as well as “limited property tax revenue and [an increase in] the costs of providing city services” as results. Additionally, in case of loan defaults, borrowers lose assets, such as their vehicles or even their homes. When foreclosures take place, property values throughout the neighborhood decrease.
Resources for targeted populations
In addition to discussions and changes taking place at state and federal levels, Grand Rapids has a variety of services and resources available. Several local organizations are seeking to provide individuals and potential borrowers with the tools they need to be empowered.
“Financial literacy is especially important for under-resourced families,” Landers says. North Kent Connect serves clients residing in northern Kent County in households with an income of 200 percent of the poverty level. According to Landers, the best piece of advice for those looking to secure their first home is the “importance of educating yourself on how to protect you and your family financially.”
To combat the aforementioned barriers, resources are available throughout the community to educate consumers and prospective business owners about financial literacy
. Topics include budgeting, debt management, preparing for homeownership, avoiding predatory home loans, and understanding your credit report and score.
To help a wide range of community members, some offerings are provided in Spanish, focused on the senior population, and may even be held one-on-one. In addition to North Kent Connect and Home Repair Services, these resources are offered through various organizations, including the Inner City Christian Federation (ICCF)
and Senior Neighbors
“We schedule educational opportunities with MSU Extension on issues related to debt/credit, savings plans, and overall increased financial awareness. We also partner with Home Repair Services for classes on home maintenance [and also provide] referrals to their home finance counselors and information,” she adds.
“[Our] wide array of skill building workshops are free and open to all in the community and they can be ideal for first-time buyers. The knowledge and confidence will be helpful as first-timers not only assess a home for purchase but begin to care for and improve it after they take possession,” says Ruiter. He stresses the value of factoring in maintenance costs, especially when purchasing an older home.
In addition to the financially-focused workshops provided, since 2001 Home Repair Services has offered “free one-on-one counseling services for area homeowners who are behind on their mortgage or property taxes and/or are worried that they may lose their home to foreclosure,” says Ruiter.
Picking up the pieces
Home Repair Services' mission highlights that strong communities are built by strong homeowners. By being able to help people successfully secure and retain their homes, the community is strengthened.
The impact of both education and collaboration with their clients has not gone unnoticed.
“We have successfully spared thousands upon thousands of area homeowners the pain and suffering associated with a foreclosure,” Ruiter shares.
For those in need of assistance, additional information about community resources be found here
Building Bridges is a series focused on the diverse entrepreneurial community within the West Michigan region. Throughout the year, the series will highlight the unique problem solvers and change makers who seek to positively impact the growth of the economy and local ecosystem. Building Bridges is supported by Grand Rapids Opportunities for Women (GROW).
About Leandra Nisbet: Leandra Nisbet, Owner of Stingray Advisory Group LLC and Co-Owner of Brightwork Marine LLC, has over 14 years of experience in leadership, sales & marketing and graphic design. Through these organizations, she assists businesses with creating strategies for growth and sustainability through: strategic planning, marketing concept development/implementation, risk management solutions and financial organization. She is actively involved in the community, sitting on several Boards and committees, and has been recognized as one of the 40 Under 40 Business Leaders in Grand Rapids.
Contact Leandra Nisbet by email at [email protected]!