by Gary Rivlin
Jack Long, an attorney in Augusta, also sued Fleet. Long was the odd man out in this group, a lifelong Republican who had spent a good deal of his legal career representing corporate clients. “I’m a fairly conservative guy,” Long told me, “but I got tired of being the guy who had to go out and screw somebody.” Of Fleet he would say, “What those bastards were doing was abuse, plain and simple. They had to be stopped.” Long sued Fleet, charging the bank with race discrimination. Another pair of lawyers in Augusta were also suing Fleet, charging that it was in violation of Georgia’s usury laws. The group stayed in touch through Brennan and a second Legal Aid lawyer, Karen Brown, a staff attorney with the agency’s Senior Citizens Law Project. They spent hours over the phone, sharing scraps of intelligence and batting around strategy. When the group met face-to-face for the first time, Howard Rothbloom was shocked that Brennan was as old as he was. He had pegged Brennan, a legal aid attorney with an excitable voice and a boyish enthusiasm, as a few years younger than he was rather than twenty years his senior.
Yet perhaps the most valuable member of their team was the only nonlawyer among them: Bruce Marks, an activist who was fighting Fleet in Boston. “I’m a real hardball player and no attorney in Boston will work with me,” Marks had warned Brennan the first time they spoke over the phone. Atlanta Legal Aid, however, had limited resources and Fleet was the fourteenth largest bank holding company in the country, a publicly traded adversary with deep pockets. “I was happy to get any help I could get,” Brennan said. Among other contributions, several people involved in the Fleet fight say, Marks popularized the term “predatory lender.” (Marks himself takes credit for the coinage and there is something to his claim. Except for a single use of “predatory lender” in an article in the Washington Post in 1983, every other early mention of that phrase, or its close cousin, “predatory lending,” appeared in either the Boston Globe or Atlanta Journal-Constitution at the start of the 1990s in articles quoting Marks fulminating about Fleet’s lending practices.)
“The problem we all faced is that much of the abuse we were seeing wasn’t illegal, it was just immoral,” Rothbloom said. It was seven local mortgage companies—Brennan took to calling them the “seven dwarfs”—that actually wrote these loans and worked in tandem with the door-to-door contractors. To make their case against Fleet, each set of lawyers would need to demonstrate that the seven companies were in effect acting as emissaries for Fleet. “We knew that a rich corporation like Fleet could afford to litigate this forever in a court of law, which is why we focused a lot of our attention on public opinion,” Rothbloom said. “In the court of public opinion, morality is more important than legality.” Brennan would describe it as a “multi-faced approach to advocacy.” Spokes people for Fleet would dub it a “media mugging.”
The way you get their attention,” Marks once explained in a newsletter for housing activists, “is to be in their face all the time.” Fleet would unwittingly offer Marks, executive director of the Union Neighborhood Assistance Corporation, a fat opportunity to put this philosophy into action when it announced it was buying the Bank of New England. Marks was a rich kid from Scarsdale, New York, with an MBA who in his previous career had worked for the Federal Reserve. Big mergers meant hearings and press attention and an opportunity to apply pressure on Fleet. “Up until now,” he reportedly said at a meeting with Fleet executives arranged by the Fed, “you have dealt with community activists. We are bank terrorists.” Data he had assembled showed that for years Fleet had made almost no home loans in Roxbury, Dorchester, and other predominantly black neighborhoods of Boston. At the same time, Fleet was bankrolling smaller lenders hawking high-rate home loans in those same communities. To make his point, he picketed Fleet press conferences and disrupted public speeches by Fleet executives. He infiltrated the company’s annual meetings and did what he could to “educate” those in attendance. Protesters dressed in bright yellow shark T-shirts that read “Stop the Loan Sharks” on front and “Sink the FLEET” on back. Between 1991 and 1993, Marks was quoted more than fifty times in the Boston Globe, including a lengthy feature article profiling this housing activist with a “beseeching tone in his voice,” “flailing mannerisms,” and a “red-eyed stare.”
Yet there was no denying his effectiveness. Fleet severed its relationship with some of the more unsavory lenders making loans in Boston’s black neighborhoods and launched a local marketing campaign to defend itself against Marks’s attacks. When that didn’t work, Fleet capitulated. It created an $11 million pool to help minority homeowners in Boston receiving what Fleet acknowledged were “burdensome mortgage loans” and then, after more pressure, upped that figure to $23 million.
Atlanta’s turn to witness the Bruce Marks Show came when his organization set up a satellite office there in September 1992. “It was Bruce who really stirred things up down here,” Rothbloom said, “and it was Bruce who kept things boiling.” He dispatched protesters to demonstrate outside the offices of King & Spalding when the news leaked out that this venerable local law firm, whose roster of partners included a former U.S. attorney general and former U.S. senators, was representing Fleet. He set up a phone bank to make sure there would be a good crowd each time they had an appearance in court. One of Rothbloom’s more vivid memories from those years was the day at the end of 1992 when a judge agreed to certify Lillie Mae Starr’s case as a class-action suit. A packed courtroom responded to the news with a loud burst of applause, and a fervent cry of “Thank you, Jesus!” rang out. If ever he needed a reminder that he wasn’t working on just any case, Rothbloom said, that was it.
The battle was fought largely by pulling the public’s heartstrings. Annie Lou Collier was granted her fifteen minutes of media fame, as were a number of Brennan’s clients, including Frank Bennett, a retiree living on Social Security, and his wife Annie Ruth, who worked as a cafeteria worker for Delta Air Lines. The Bennetts ended up owing Fleet $28,000 after paying a contractor $9,900 for a job that an inspector hired by Legal Aid said was worth barely half that amount. Christine and Robert Hill lost their home after falling behind on a Fleet home equity loan carrying a 23.4 percent interest rate (“I figured if it was God’s will, I would get something else,” Christine Hill told the Associated Press). James Hogan, a soft-spoken janitor, was $84,000 in debt to Fleet and facing foreclosure in what started out as a $6,200 loan to repair a roof that still leaked. “When my father passed, he didn’t have anything to give me,” Hogan, the father of five, told a reporter for the Newhouse News Service. “I wanted to give this house to my children.”
Fleet’s defense was that these stories, while tragic, had nothing to do with them. Fleet had not made the loans; it had merely purchased them from third parties. Holding the company responsible for the business practices of these independent agents, a Fleet lawyer argued, would be like saying Fleet was accountable for the business practices of anyone with whom they worked, including the printer that supplied them with loan documents. “These people may be poor and illiterate, but no one puts a gun to their head and tells them to sign,” a Fleet vice president, Robert Lougee, Jr., told the Globe. Besides, nothing we do is out of step with the rest of the consumer finance industry, Lougee asserted. The difference, he said, is that Fleet has drawn the notice of a publicity-seeking activist and a small group of self-serving lawyers seeing the potential for a large-dollar judgment.
Lougee was right on at least one point: Fleet’s practices increasingly seemed in step with the rest of the industry. There were reports of home repairmen and mortgage lenders working in cahoots to target consumers who were house rich but cash poor in any number of locales. In Los Angeles, a legal aid attorney named Troy Smith might as well have been talking about Atlanta when he told a local reporter about “people going door-to-door, passing out fliers, convincing people to sign up for loans they can’t afford and don’t understand.” In 1991, a jury in Alabama returned a $45 million judgment against Dallas-based Union Mortgage after five black families accu
sed the lender of encouraging fraudulent home repair loans. (Fleet bought millions in loans from Union Mortgage.) Another pair of Alabama juries slapped Union Mortgage with a combined $12 million in verdicts that same year.
Whenever they were talking with the press, Fleet officials insisted that they had nothing to do with the interest rates these loan originators charged or the up-front fees (typically in the double digits) they added. But the Boston Globe was able to expose this claim as untrue. Fleet Finance gave its brokers a financial reward (called a yield spread premium) when a lender put a borrower into a higher interest rate loan, the paper reported. There were internal memos showing that Fleet Finance frequently set the terms of these loans. Its people often reviewed the applications of would-be borrowers before a loan would be made. Marc Siegel, owner of Georgia Mortgage Center, one of the seven Georgia lenders that worked most closely with Fleet, told the Globe he met several times a week with his Fleet contact. The contact was constantly letting Siegel know he would have to do things Fleet’s way or they wouldn’t buy any more loans. A former regional manager named Robert McCall went even further. It was no accident that the system evolved as it did, he said. Fleet wanted to give itself plausible deniability and shield itself from charges that it was using high-pressure tactics or in any way violating the loan origination laws. Of these seven companies—the “seven dwarfs”—four sold more than 96 percent of its loans to Fleet, the Globe found, and the remaining three sold at least half and as much as 78 percent.
Fleet claimed its lending partners needed to charge so high a rate because of the risk profile of its borrowers, despite the fact that putting up one’s home as collateral substantially mitigated those risks. Certainly Fleet didn’t prove itself reluctant to go after a person’s home if they defaulted. In 1991, Fleet foreclosed on the homes of nearly 13 percent of the residents with whom it did business in Atlanta and its suburbs. That was seven times the rate of the next largest lender in the metro area. A Fleet Finance executive claimed that the company lost money when it was forced to foreclose but a reporter for the Journal-Constitution examined the records for the Atlanta area and discovered that while the company lost $17,000 per home on the 101 homes it sold at a loss, it made an average of $32,000 per home on 194 homes. That worked out to a profit of $4.4 million before other expenses.
None of these reports might have made a difference if not for the CBS News program 60 Minutes. Fleet, the show’s Morley Safer told viewers in November 1992, has “set up what amounts to a loan sharking racket.” The program introduced the nation to people like Raymond Bryant, who had paid $3,500 in fees on a $11,400 loan—more than 30 percent in up-front costs on a loan carrying a 23 percent interest rate. And they heard as well from Charles Hastings, who spent his days cruising black neighborhoods in Atlanta in search of potential borrowers. “I’m not a salaried person,” Hastings told Safer. “I just get up every day and go out and find business.” It was Roy Barnes, the lawyer, who offered the episode’s most memorable quote and the one CBS used to promote the episode. “I don’t know what y’all call it up north,” Barnes said, “but down here in the South we call it cheatin’ and swindlin’.” Shortly after the program ran, the Georgia attorney general announced his office would be investigating Fleet Finance; Bill Brennan’s phone again was ringing off the hook.
People who joined Brennan over the years in his crusade to out the country’s predatory subprime mortgage lenders speak of him as a living legend. “He deserves a ton of credit for showing the rest of us how destructive this lending was,” said Mike Calhoun, the president of the Center for Responsible Lending, the organization that has taken the lead against predatory lending in its various forms. “He got involved before the rest of us, when it was the Wild West of lending and lenders were just grabbing huge amounts of home equity.”
Bill Brennan, however, gives credit to a woman named Kathleen Keest. “Keest is the original brains behind all this stuff,” Brennan said. “She’s our guru. She started figuring out what was going on in the mideighties.” In 1985, Keest moved to Boston to take a job as a staff attorney at the National Consumer Law Center monitoring the various vehicles that entrepreneurs and large corporations were concocting to get rich off warehouse workers, store clerks, and retirees struggling to make ends meet. “I’ve watched entire industries grow up,” Keest said. “And I’ve seen a lot of people get hurt.” In 1996, she took a posting as an assistant attorney general in Iowa, where she played a key role in exposing Ameriquest Mortgage, one of the more reckless subprime lenders in the first half of the 2000s. In 2006, she moved to North Carolina to take a job as a senior policy counsel at the Center for Responsible Lending.
Keest was running a regional legal aid office in Des Moines in 1984 when she picked up her first predatory mortgage case. This was early in what Keest dubs “wave one” of the subprime debacle, when some of capitalism’s scrappier practitioners took advantage of a seemingly sensible set of policy changes. For years many states had a cap—typically around 10 percent—limiting the interest rates banks could charge on a mortgage. Those went by the wayside when the country experienced double-digit inflation through much of the 1970s and the credit markets for people looking to buy a home froze. States were starting to lift those caps and if some locales were foresighted enough to keep in place a floating ceiling on the amount a mortgage lender could charge, those would be wiped out when the federal government, in 1980, passed a law barring the states from imposing limits on the rates a lender could charge on a real estate transaction. Two years later, during President Ronald Reagan’s tenure, the federal government would go further, giving lenders the latitude to sell more creative home loans, from balloon mortgages (in which most principal payments are deferred to the end of the loan period) to adjustable rate mortgages, or ARMs, which can see the interest rates a borrower pays fluctuate dramatically over the life of a loan.
The big consumer finance companies such as Household and Beneficial were among the first to jump on this first wave. Traditionally consumer finance firms had specialized in small, high-interest loans in the neighborhood of $500 or $1,500 to customers needing financing to replace a broken refrigerator or to buy a bedroom set for the kids. But this newly deregulated environment meant they could sell larger loans to these same customers at similar rates. “Once these guys moved up the food chain,” Keest said of the consumer finance companies, “we started seeing countless examples of people who purchased homes in the prime market”—when home loans were still regulated—“only to lose them in the subprime market.” People spoke of a new era of “risk-based pricing,” where interest rates were set based on the risk profile of a borrower, but Keest saw it as “opportunistic pricing”: charge as much as you can despite the security of a person’s home as collateral.
“Who cared if companies were screwing poor people?” Keest asked. “It was the eighties.”
With this first wave a new set of terms entered the lenders’ vocabulary. A lender was said to be “packing” a loan when a salesperson had been able to load it with points and fees and expensive baubles like the credit insurance Household sold Tommy Myers. “Flipping” was a broker’s ability to convince customers to refinance again and again—packing each new loan with additional points and broker fees. Another common gambit was to convince borrowers to consolidate their bills into a single home loan—often not realizing that in exchange for the convenience of a single monthly bill they had suddenly placed at risk their most valuable possession, their home. All of these practices added up to “equity stripping,” the fiendish art of siphoning off the equity people have built up in their homes.
Keest spotted other forms of subprime lending creeping into the culture by the end of the 1980s. Deregulation was one cause but broader economics were a factor as well. The country grew more prosperous during the 1980s and ’90s but the relative wages of the working class fell, expanding the pool of would-be borrowers desperate for the quick cash that could tide them over between paychecks.
It was almost inevitable that a raft of clever entrepreneurs would try to fill the gap—for a price.
Keest struggled to keep up with all the new developments in a bimonthly newsletter she wrote and edited for the Consumer Law Center. Keest, a short, slim woman with a long narrow face framed by a pageboy hairdo, remembers the first time she learned about what she dubbed “postdated check loans.” It was 1988 and a reporter in Kansas City called to ask her about the legality of a local company making short-term loans to customers who put up their next paycheck as collateral. To Keest, this was a revival of the “salary buyers” who popped up around the country in the second half of the nineteenth century—the so-called “five for six boys,” since people would borrow $5 on a Monday and pay $6 on Friday. The country had outlawed the salary buyers early in the twentieth century but now in state after state, legislatures were providing carve-outs in their usury laws to legalize this new crop of lenders. “Tennessee was the first place to take it big but then plenty of states followed,” Keest said.
There were always novel credit schemes to keep Keest busy. One of the more creative was the “auto title loan,” which she first heard about in the early 1990s. These were similar to loans made by the country’s pawnbrokers except that a lender would take possession of the title as collateral rather than the vehicle itself, allowing people to continue driving while a loan was outstanding. Even businesses that had been around since well before the 1980s, such as rent-to-own and check cashing, provided plenty of fodder for her newsletter as these industries scored legislative victories that fostered further expansion. She felt that she was fighting a losing battle. The gap between the well-off and the less fortunate was widening and a slew of high-interest, high-fee products promised to exacerbate the disparity.
