This morning I testified before the House Financial Services Committee to support the creation of a robust new Consumer Financial Protection Agency. You can read my prepared testimony here.
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Thank you, Mr. Chairman, Ranking Member Bachus and members of the Committee onFinancial Services for inviting me here today. I appreciate the opportunity to share withyou the views of the NAACP on the creation of a Consumer Financial ProtectionAgency, or CFPA. I would also like to begin by thanking you, Chairman Frank, for allyou have done and continue to do to help low- and middle-income Americans, as wellas racial and ethnic minority Americans attain financial security. In fact, NAACPmembers from across the Nation who were fortunate enough to hear your presentationat our annual convention in New York earlier this year are still talking about the newagency and its promise for our communities.
More than one hundred years old, the NAACP today is our Nation's oldest, largest andmost widely recognized grassroots civil rights organization. We currently have morethan 2,200 units in every state in the country, as well as in Italy, Germany, Korea andJapan.
The NAACP is very supportive of the creation of a strong and effective ConsumerFinancial Protection Agency with the protection of civil rights and a directive that it seekout and work to eliminate discrimination as a core part of its mandate. We need clearand concise rules, clearly and vigorously enforced, if we are to promote economicsecurity and growth throughout our Nation. For too long, racial and ethnic minorities,the elderly and others have been targeted by unscrupulous lenders and underserved bytraditional financial institutions. The result of this lack of standard rules and strictenforcement of the rules that we do have has been the financial stagnation, and in toomany cases, the economic ruin, of entire communities.
Our current system of consumer protection fails to protect Americans of all races andbackgrounds from the most basic exploitation and abuses that can cost individuals andfamilies hundreds of thousands of dollars, and even their homes. Current laws andenforcement allow a range of institutions to escape supervision because responsibilityfor consumer protection is fragmented across too many regulators. Too many financecompanies are not regulated at all at the Federal level.
When they have been engaged, too many regulators have spent too much time inrecent years asking 'What's the effect on the financial firm?" without asking 'What's theeffect on consumers?" As a result, among other problems, regulators permittedinappropriate mortgages and abusive credit card practices. And the result of thesemisplaced priorities, as we have seen, has been an almost complete collapse of notonly our Nation's economy, but the near ruination of the global financial system as well.In the recent crisis, many of the people who were targeted by unscrupulous lenders losttheir savings, their financial security, and in too many cases their homes. Sadly, manyof the worst abusers consistently targeted low-income families, racial and ethnicminorities, women and the elderly.
Examples of the financial abusers targeting racial and ethnic minorities abound, and canbe found throughout the mortgage arena, where predatory lenders consistently targetedAfrican Americans and others. This was also done in credit card abuses and in paydaylending, just to name a few.
For example, in the American mortgage market predatory lenders have, for decades,targeted African American borrowers and other racial and ethnic minorities as well asthe elderly with their nefarious products. A study by the Center for Responsible Lendingdemonstrated that for most types of subprime home loans, African American and Latinoborrowers are more than 30% more likely to have higher fees and interest rate loansthan Caucasian borrowers, even after accounting for differences in risk.
In fact, Unitedfor a Fair Economy estimates that people of color are 2 to 5 times more likely to receivea predatory loan than white borrowers. Put in other terms, sub-prime mortgageoriginators have flooded minority communities with high-cost, unsustainable loans thatwere made to consumers without regard to their ability to repay or the value of theproperty. From 2000 to 2007, communities of color lost between $164 and $213billion, and the numbers keep rising as the foreclosure crisis worsens. Fannie Mae andFreddie Mac estimate that up to half of the borrowers who received subprime loansshould have qualified for "prime-rate" conventional loans, had mortgage lendersexercised proper business sense.
This is not a new trend. As far back as 2000, a study by the U.S. Department ofHousing and Urban Development clearly demonstrated that many people of color couldqualify for more affordable loans than they were receiving.
In 1996, a study by FannieMae and Freddie Mac reported that as many as a third of the families who receivesubprime loans actually qualify for prime loans.
Sadly, mortgage lenders are not the only ones who target racial and ethnic minoritycommunities with their wealth-stripping products. In the credit card market, one reportshowed that 15% of African-American and 13% of Latino card users have cards withinterest rates over 20%, compared to only 7% of White card users - many of whom areresponding to credit card solicitations with preset terms and conditions. Ourcommunities were also hard hit by the exploitative ploys of some credit card companieswhich would hike interest rates and charge excessive fees, often without anyadvance notice and sometimes without the knowledge of the credit cardholder.
And payday lenders are notorious for setting up their shops, and charging incrediblyexploitative rates, in abundance in African American communities. To paraphraseJulian Bond, the Chairman of our National Board of Directors, payday lenders are ascommon in African American communities as Starbucks Stores are in middle classcommunities that are predominantly White.
It is because of these targeted abuses that the NAACP strongly supports the creation ofa strong Consumer Financial Protection Agency. As envisioned, the CFPA wouldprovide the government with the tools necessary to help consumers navigate and betreated fairly by what is often a confusing and potentially ruinous environment; it wouldsupport if not require regulators to become more protective of consumers; and it wouldmake civil rights protections more of a key element in the regulation and oversight offinancial services.
It is also because of the systemic discriminatory and abusive lending practices and theresulting wealth-stripping, ruinous effects, that we feel very strongly that the newlycreated Consumer Financial Protection Agency must be given the mandate as well asthe power to seek to prevent and remedy illegal discrimination. We were pleased to seeand are supportive of the provisions in the latest draft of the CFPA legislation thatcreates an Office of Fair Lending and Equal Opportunity, and makes the fight againstdiscrimination based on race or ethnic background part of the mandate of the newagency. These provisions will go a long way toward putting some teeth into the lawsthat are already on the books and to protecting consumers, all consumers, as theyattempt to navigate our Nation's financial services.
One area that the NAACP would like to see the current CFPA proposal strengthened isthat we would like to see regulation of the Community Reinvestment Act, the CRA, fallunder the CFPA's jurisdiction. We need to renew, reinvigorate, modernize and expandCRA, and I appreciate the comments of the Chairman last week when he said that he,too, is serious about updating this important law. I would suggest that perhaps in thecourse of reauthorizing CRA, this committee consider putting authority for this importantlaw under a newly created and robust CFPA. In order to fully address the needs of localcommunities, many of which are represented by the NAACP, the CFPA should be ableto review and enforce lending laws at that level.
Mr. Chairman, members, as I have said all along, the NAACP strongly supports thecreation of a robust CFPA and appreciates all the work that has gone into including civilrights protections in the draft that we are currently discussing. It is our belief that astrong CFPA will go a long way toward addressing the very real needs of enforcementand regulation in the financial services arena. However, let me make it clear that wehave no illusions that this new agency will fully address all of the needs andshortcomings that continue to plague our communities, and indeed our Nation.
We still need strong laws to address many of the problems that allow unscrupulouslenders to target low- and moderate-income Americans, as well as racial and ethnicminority Americans and the elderly at all levels of the economic scale. Specifically, theNAACP will continue to fight for aggressive anti-predatory lending laws, as well as curbson abusive payday loans and real assistance for homeowners facing foreclosure.In that vein, I look forward to continuing to work with you, Mr. Chairman, as well as all ofthe other members of this committee to enact strong legislation to help all Americansgain the American dream of economic security.
Thank you again for inviting me here today and I stand ready to take any or yourquestions.
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