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Resolution

Re-affirming 2002 Policy on Predatory and Payday Lending Practices

WHEREAS, the economic status of African-Americans in general is worse than that of white Americans; and

WHEREAS, the net worth of African-Americans is approximately 10% of that of white Americans; and

WHEREAS, many African-Americans, as well as other minorities and low-wealth citizens struggle each day to meet basic needs; and

WHEREAS, wages have not kept pace with the cost of living; and

WHEREAS, the credit needs of African-Americans and other low-wealth citizens is evident in the disparities between net worth, as well as income, and the overall cost of living; and

WHEREAS, many financial institutions, including responsible lenders in the sub-prime sector, are knowledgeable of the credit needs of the low-wealth population and many have responded responsibly; and

WHEREAS, these credit needs are now targeted and exploited by a growing number of predatory and payday lenders; and

WHEREAS, these predatory and payday lenders are concentrated in the sub-prime sector; and

WHEREAS, a recent study by the U.S. Department of Housing and Urban Development showed that borrowers in African-American neighborhoods are five times more likely to get a loan from a sub-prime lender – and therefore pay more – than borrowers in white neighborhoods; and

WHEREAS, borrowers in upper-income African-American neighborhoods are twice as likely as homeowners in low-income white areas to receive sub-prime refinance loans when refinancing; and

WHEREAS, over half of mortgage refinancing is in predominately white neighborhoods; and

WHEREAS, studies by Fannie Mae and Freddie Mac suggest that sub-prime lenders charge prime borrowers who meet conventional underwriting standards higher rates than those for which they qualify; and

WHEREAS, the practice of predatory lending and high cost payday lending are stripping the wealth from these sectors of the populations; and

WHEREAS, these predatory and payday lending practices are deepening debt and stripping equity from these populations; and

WHEREAS, predatory lending strips over $9 billion of wealth annually from American families; and

WHEREAS, the financing of excessive upfront fees strips equity from homes without providing any benefit to borrowers; and

WHEREAS, the practices of "flipping" borrowers through repeated fee-loaded refinancing strips hard-earned equity repeatedly without providing a net tangible benefit for the borrower; and

WHEREAS, responsible lenders in the sub-prime sector play an important role for providing borrowers, who have encountered temporary credit problems, with a bridge to conventional financing; and

WHEREAS, abusive practices such as prepayment penalties, balloon payments and negative amortization prevent this transition from taking place; and

WHEREAS, payday lenders regularly charge customers making five or more loans per year thus, creating a debt treadmill for borrowers; and

WHEREAS, payday lenders regularly charge customers rates in excess of 500%; and

WHEREAS, ninety (90) percent of total payday loans come from customers taking five or more loans per year, creating a debt treadmill for borrowers; and

WHEREAS, forced arbitration clauses in consumer contracts insulates unfair and deceptive practices from effective review and closes the courtroom door for borrowers who have been wronged; and

WHEREAS, mortgage brokers originate over half of all mortgage loans and a relatively small number of brokers are responsible for a large percentage of predatory loans; such broker practices are largely unregulated; and

WHEREAS, many borrowers are denied justice because a predatory loan has been purchased or assigned to a third party; and

WHEREAS, disclosure, education and protections and remedies under the Federal Home Ownership and Equity Protection Act are important but inadequate responses to the problem of payday and predatory lending.

THEREFORE BE IT RESOLVED, that the NAACP stands against such practices and vigorously seek to prohibit payday and predatory lending. These reforms should address steering borrowers to sub-prime loans, preventing financing of excessive fees, limiting prepayment penalties, sufficiently addressing mortgage broker abuse and addressing unfair forced arbitration clauses; and

BE IT FINALLY RESOLVED, that the NAACP shall seek the advanced reforms by financial institutions, regulators and policymakers.

Derrick Lewis - Youth & College Hero

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