Feeding frenzy 

Will Georgia legislators pull the fangs from unscrupulous lenders?

"Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor."
-- James Baldwin

Ethel Ivey is an Atlanta cliche. She's poor. She's black. She's proud. A multibillion-dollar lender, Beneficial Finance, calculated that this combination of poverty, race and hold-tight-to-what's-dear dignity made Ivey gullible for a slick sales pitch.

In order to make some repairs on her much-beloved home, Ivey wanted to borrow a little cash. "We kept getting all this mail from Beneficial," Ivey says. "It sounded real attractive, what they offered."

No one held a gun to Ivey's head. But the sharks in the lending business know there are millions and millions of low-income, minority and elderly Americans who have their life savings -- tens of billions of dollars nationwide -- invested in their homes.

"The Beneficial folks were so nice at first," Ivey says. "When they sent someone to talk to us, it was a black lady, and I thought she was my friend."

Rather than make a simple, small personal loan to Ivey, she says, Beneficial pushed her to borrow $34,500 and mortgage her home. It was supposed to be a 15-year loan with fixed payments. But, as Ivey was to find out, the payments started escalating. Even worse, writing a check for her monthly payment would never get rid of the debt. "They told me I'd never pay off the loan," Ivey says.

Beneficial's solution? Ivey says the company urged her to plunge even deeper into the hole by shouldering a 20-year loan at an even higher interest rate. That would have cost her more than $100,000. Her Social Security income would largely have been consumed by the debt -- a fact Beneficial certainly would have known.

Beneficial is now owned by another company, Illinois-based Household International. Spokeswoman Megan Hayden says she can't access records from pre-Household ownership, including Ivey's. Payment stubs kept by Ivey show her relationship with Beneficial continued after the company's acquisition by Household.

Of Household's general business practices, Hayden says, "You don't stay in business 123 years and take advantage of your customers." Nonetheless, Beneficial and Household -- which rakes in profits of about $2 billion a year, mostly by charging low-income borrowers sky-high rates and fees -- are routinely included in government, consumer watchdog and media reports on lenders who unfairly and, often, illegally gouge customers.

For Beneficial, Ivey's home was a gold mine. It wouldn't have taken long for Beneficial to squeeze the last bit of equity out of the house, not to mention siphoning off an ever-growing percentage of Ivey's small fixed income.

The happy news for Beneficial would have been that after Ivey was, financially speaking, a desiccated hulk, the company likely would have owned her home, and could have resold it at a profit.

A win-win deal for Beneficial, lose-lose for Ivey.

Miss Ivey, as she's called by friends, is just one of hundreds of thousands of homeowners around the nation being victimized by a devilish collection of unscrupulous financial practices lumped under the catch-all name of "predatory lending." And few cities are riper targets for these lenders than are Atlanta's blue-collar and African-American residents, many of whom are poor and unsophisticated in financial transactions, but who also boast high home ownership levels.

Many of those homes are paid for, others have an abundance of equity and little debt. That's money for the taking for the loan hucksters who roam working-class neighborhoods, trying to convince people to refinance their homes.

When the Georgia Legislature kicks off its annual session next week, the frantic focus will be on the economy and state budget cuts. But, after the belt-tightening, one of the biggest battles likely will be fought over whether to pull, or at least dull, the teeth of financial predators.

"These lenders are equal-opportunity rip-off artists," says state Sen. Vincent Fort, D-Atlanta, who has worked for two years to save the homes of people like Ivey. "Folks are getting their houses stolen. As long as you have a house to steal, these lenders are your friends -- friends you can't get rid of."

In Atlanta, the number of "subprime" loans soared 500 percent between 1992 and 1998, according to the U.S. Department of Housing and Urban Development.

The subprime category typically involves loans with high interest rates and fees. It's big business: The Federal Trade Commission calculates that in just the category of subprime home-improvement loans, the volume climbed 28 percent to $160 billion between 1997 and 1999.

The loans supposedly allow access to funds for higher risk low-income borrowers or those with impaired credit. The truth is that lenders target groups they feel are gullible, and many creditworthy people are channeled toward subprime loans.

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