Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, December 12, 1994 TAG: 9412120073
SECTION: VIRGINIA PAGE: A8 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
DATELINE: LENGTH: Long
At first, the bank brushed off the complaints about its Atlanta-based subsidiary, Fleet Finance.
"We think the whole issue is totally bogus," one top executive told the Boston Globe. "These people may be poor and illiterate, but no one puts a gun to their head and tells them to sign. The idea that Fleet should regulate the world is preposterous."
But as pressure from the media, consumer attorneys and neighborhood activists grew, the bank's tone began to soften. John Strickland, Fleet Finance's chief executive, told a congressional hearing: "When I read some the articles in the paper, I asked my wife, I said, 'Jesus Christ, do I run that company?'"
In the end, Fleet admitted to "some excesses" in its lending to disadvantaged borrowers. It came up with at least $284 million in settlements and special aid programs to stave off lawsuits and government investigations in Massachusetts, Georgia and other places. This fall, the company agreed to pay $2 million to settle a class-action lawsuit involving 300 Virginia customers, including six in Roanoke and others in Salem, Moneta, Hardy and Boones Mill.
To top things off, Fleet announced an $8 billion loan effort for urban neighborhoods where affordable credit is hard to find.
Fleet has transformed itself - in the words of one critic - from "the worst bank in the nation to the best" when it comes to serving low-income and minority borrowers.
But the change did not come easily. The $48 billion banking company remade its image only after three years of bitter warfare with its detractors. Along the way there were charges and countercharges, old-fashioned protest marches, and a tense face-off in the halls of Congress.
Fleet's opponents succeeded in tagging the lender as the highest profile example of what consumer advocates call "predatory lending."
They say predatory lenders target minority, low-income and blue-collar borrowers - who are often locked out of bank credit - for loans with sky-high fees and interest rates. Lawsuits have accused Fleet and other major lenders of working with home-repair contractors and brokers to fleece these homeowners.
Frank and Annie Ruth Bennett found themselves struggling to pay almost $500 a month to Fleet after a home-repair contractor knocked on their door and offered to fix up their small frame house in east Atlanta.
The tin man arranged an 18.5 percent second-mortgage. Then he took nearly $10,000 to pay himself for work an appraiser later valued at just $1,245. They had to put up a sheet of plastic to cover a gaping hole after their living-room ceiling fell in.
The Bennett's mortgage was arranged by a company called Home Equity Centers - which in turn sold it to Fleet Finance.
Court records show that Fleet had connections with Home Equity Centers dating back to a 1983 brokers agreement and a 1985 business loan. From 1985 to early 1991, Fleet bought more than 90 percent of Home Equity Centers' mortgages in Atlanta's DeKalb County.
Borrowers' attorneys say Fleet controlled a clique of smaller lenders around Atlanta - a group they dubbed the "Seven Dwarfs." An investigation by the Boston Globe found that Fleet used "detailed memos and nearly daily phone calls" to instruct the brokers how to run their businesses, "pre-approved" many loan applications before the homeowners signed contracts and wired the brokers money to complete the deals.
Fleet denied bankrolling or controlling the smaller companies. It said they were "totally separate" businesses. But the pattern was similar across the nation: Fleet bought thousands of mortgages from shady lenders.
Fleet purchased $15 million worth of mortgages from Freedlander Inc., a Virginia-based second-mortgage company that collapsed in 1988. Freedlander's top executives went to jail for defrauding investors and federal investigators found that the lender frequently used deceptive practices to entice low- and moderate-income homeowners into high-cost mortgages - some with interest rates as high as 23 percent.
The Fleet story started in 1973, when the banking company bought an Atlanta-based company, Southern Discount, that made small loans on furniture and other items. It was not until 1983 that the company, by then called Fleet Finance, moved into the home-equity loan market - after Georgia and other states where it operated threw out or weakened their interest limits on second mortgages.
In cities across the country, many older or working-class homeowners were cash-poor but house-rich; They had limited incomes but they owned modest houses that had spiraled in value. Borrowing on the equity in their homes gave them a way to tap into that wealth. It also made them targets for lenders who saw a chance to profit from their financial neediness and, often, their lack of sophistication in complex credit transactions.
By spring 1991, Fleet Financial Group was riding high. True, its mainstream banking operations were getting clobbered by New England's recession - the company finished the previous year $48 million in the red. But there was a bright spot: Fleet Finance had raked in $60 million in profits for the year.
That cash flow helped give the parent the clout it needed to win its takeover bid for the Bank of New England, and become the biggest bank in the region. Wall Street observers hailed the bank's chief executive, Terrence Murray, as a corporate savior.
But all was not well: Neighborhood activists and reporters in Boston had been digging into Fleet's lending practices. Lawyers in Georgia also had begun investigating.
In Boston, a community group, Union Neighborhood Assistance Corp., dug into the record of Resource Financial Group, a lender that was operating with a $7.5 million line of credit from Fleet. According to UNAC, three-quarters of the Boston families who borrowed from Resource were facing foreclosure or had already lost their homes - in large part because of the high rates Resource charged them.
The attorneys general in Massachusetts and, later, Georgia opened investigations. Consumer attorneys in Georgia filed a series of lawsuits involving up to 20,000 borrowers. In fall 1992, the Fleet story went national: CBS's "60 Minutes" aired a segment on the charges against the company.
Fleet launched a public relations counteroffensive. Before the CBS story aired, Fleet announced it was pledging $30 million nationwide to help borrowers who had "burdensome" loan rates - and that it was donating $8 million to help poor neighborhoods in Atlanta.
After the "60 Minutes" story ran, Fleet issued a point-by-point critique, calling it a one-sided "television mugging."
Then it went after its biggest critic, UNAC director Bruce Marks, a self-proclaimed "banking terrorist" with some radical, confrontational methods.
After Marks claimed that Fleet was in danger of going belly-up because of the potential losses from the Georgia lawsuits, Fleet threatened to seek criminal charges against him for making "irresponsible allegations" about the bank's solvency. "He has orchestrated an elaborate campaign to smear Fleet," a spokesman said.
But the story moved from Boston and Atlanta to Washington. The Senate Banking Committee called hearings and questioned John Hamill, a top Fleet executive, before a room packed with borrowers from Boston and Georgia. Hamill told the committee that "the ethical nature of this company is high" and that Fleet was committed to helping to rebuild the nation's inner cities.
Angry borrowers in the audience had to be cautioned to be quiet. Sen. Barbara Boxer, D-Calif., couldn't understand how the company could charge mortgage rates as high as 28 percent: "Is there no shame? Is there no conscience here?"
After the hearing, UNAC turned up the heat on Fleet. It created a national hotline - 1-800-96SHARK - to field complaints, and began pressuring Fleet shareholders to sell their stock. UNAC supporters picketed Fleet bank's annual meeting wearing bright yellow T-shirts with CEO Murray's picture and the words, "Loan Shark."
As federal regulators increased scrutiny of the bank, Fleet slowly gave way. It stopped purchasing loans from smaller lenders and quietly began serious settlement discussions with its attackers.
Last January it agreed to a $115 million settlement to end the state investigation and most of the lawsuits in Georgia. A month later Fleet announced its $8 billion national lending program aimed at low-income borrowers. As part of the plan, its nemesis, UNAC, will control $140 million in mortgages that will come with no down payments or closing costs.
In October, Fleet agreed to pay an average of $7,500 apiece to 300 Virginia customers. Their class-action lawsuit claimed Fleet had paid kickbacks to brokers who had arranged the loans as an incentive to inflate the fees and interest rates as high as possible. Fleets' lawyers said the allegations were "grounded in suspicion, speculation, sinister inferences and ignorance." But the company settled rather than take the case to trial.
While activists say many victims have yet to be compensated, Fleet's opponents have for the most part declared victory. They say the battle was won by combining a variety of tactics - massive lawsuits, attention-grabbing protests, well-documented research, pressure on government regulators, door-to-door organizing.
The Rev. Minnie Davis, a community activist in Augusta, Ga., said most victims thought they were alone - that they had brought their problems on themselves.
"They were ashamed at first, because nobody was saying anything," Davis said. "When other people start speaking out, they kinda overcome their shyness and say, 'That's happened to me, too. You need to do something to help these people.'"
In the midst of the conflict, Dorothy Thrasher had predicted victory. Thrasher, 61, almost lost her home in Atlanta to Fleet after getting hooked into a loan by two vinyl siding salesmen. "You can't keep mistreating people and have the problem ignored forever," she said. "God doesn't let good people suffer and suffer without no justice."
by CNB