At the end of June, as the subprime mortgage crisis was driving the economy into a tailspin, Charles Steele Jr., the president of the Southern Christian Leadership Conference (SCLC), took to the op-ed page of the Washington Post
the devastating effect the meltdown was having on minority homeowners. But rather than support currently pending measures to better regulate the credit markets, the leader of one of the nation's oldest civil rights groups instead attacked them. Steele was particularly upset about a Federal Reserve proposal that would crack down on subprime credit cards—high-interest cards marketed to people with bad credit.
Steele rose to the card issuers' defense, invoking his group's founder, Martin Luther King Jr., and claiming that any move to regulate the cards would deny minorities access to much-needed credit. (In July, after another op-ed piece on a similar topic appeared under Steele's byline in a a handful of papers, he claimed he didn't write it or authorize its release; according to Steele's lawyer, a Washington public relations and lobbying firm was behind the commentary.) The argument was an odd one coming from a civil rights group. Most consumer groups believe that the subprime industry is largely predatory, and rife with abuses that disproportionately affect minorities. But Steele's op-ed makes a lot more sense when you consider a detail the Post at first left out: In August 2007, the SCLC formed a partnership with CompuCredit, a subprime credit card issuer and payday lending company. (The Post later updated its story to reflect this.) The deal included plans for an affinity card that would put the famous civil rights group's name on CompuCredit Visa cards and joint "economic empowerment" workshops around the country to help educate minorities about credit. When Steele announced the deal last year, he said, "Consistent with SCLC's historic commitment to civil rights and economic justice, this partnership represents a critical part of our campaign for economic empowerment."
While the civil rights group has been lauding its corporate partner, the federal government has taken a slightly different view of CompuCredit's contributions to economic empowerment. Last month, the Federal Trade Commission sued the company for unfair and deceptive trade practices, as well as violating the Fair Debt Collection Practices Act. The FTC alleged that CompuCredit bilked consumers out of at least $217 million through a scheme in which consumers paid so much in fees that they rarely had any credit available on the company's Visa cards. The CompuCredit cards are better known as "fee harvesting" cards—that is, credit cards sold to people in dire financial straits that have high interest rates, low credit balances, and lots and lots of fees for people who generally can't afford them. The practice is enormously lucrative. The National Consumer Law Center reports that in 2006, CompuCredit made $400 million in fees on such cards, simultaneously saddling consumers with more than $1 billion in debt.
The FTC also alleged that CompuCredit was working in tandem with its debt-collection arm, Jefferson Capital, in a complex scheme that used the credit cards as a way of duping consumers into paying off old debts that had been discharged by other lenders. Far from lifting consumers upward, CompuCredit was leaving its customers mired in debt, from which they would have a tough time escaping.
The fraud allegations against the company don't seem to have soured the storied civil rights group's enthusiasm for it. After the FTC filed its suit in June, Steele defended the company, saying that CompuCredit "has been a true friend to the SCLC and to the communities and individuals it serves, and in our opinion is one of the few financial services companies that is working diligently to increase access to credit in underserved communities." Steele did not return a call for comment. Of CompuCredit's relationship with the SCLC, Tom Donahue, the company's director of corporate communications, says, "As a company that provides credit products and financial services to financially underserved consumers, CompuCredit has an abiding interest in working with individuals and third-party organizations that share our commitment to financial education and to helping credit-challenged consumers bridge their way to a prime credit score and the financial mainstream."
William Jelani Cobb, a history professor at Atlanta's Spelman College who has followed the fortunes of the civil rights infrastructure, says that he was unaware of the SCLC's relationship with CompuCredit, but is not surprised by it. "It's an indictment of how far SCLC has gone from its historic roots. These folks owe their existence to a moral claim to helping other black folks. This is an outright betrayal of that."
SCLC is not the only civil rights group or black advocacy organization that has linked arms with CompuCredit and other companies that peddle high-interest credit and predatory loans to poor minority communities. The fringe finance industry has intentionally tried to cultivate relationships with minority organizations as part of its lobbying campaign against stricter regulation, both at the state and federal level. "Just like they target minority groups to sell their products, they target minority groups to make their products look legitimate," says critic Keith Corbett, executive vice president of the Center for Responsible Lending (CRL).
Three years ago, Al Sharpton went so far as to appear in TV commercials for LoanMax, a company that specializes in auto-title loans, whose 300 percent interest rates consumer advocates consider deeply predatory. CompuCredit has participated in Jesse Jackson's Rainbow/PUSH Coalition's career fairs and economic summits. Local affiliates of the National Urban League, one of the nation's oldest civil rights groups, have worked with the payday lending industry trade group, the Consumer Financial Services Association (CFSA), to conduct financial literacy seminars. Denise Harrod, CompuCredit's vice president, has served on business committees of the National Conference of Black Mayors and the National Black Caucus of State Legislators, both of which have received money from the payday lending industry.
Payday lenders were popular honorees this year among civil rights groups celebrating the birthday of Martin Luther King Jr. The president of CFSA, the payday lending industry lobby group, chaired the Congress of Racial Equality's (CORE) Martin Luther King Jr. awards dinner in January. To honor the King holiday this year, SCLC gave its presidential award to CompuCredit's Harrod for her "leadership in the struggle for economic justice through the political process."
The rationale behind the industry's cultivation of African American supporters is fairly simple. Payday lenders and other corporations that specialize in predatory lending have only one really useful argument in defending their business practices, and it goes like this: They provide a public service by catering to the "unbanked" and other financially underserved communities—i.e., those discriminated against by white banks that won't make loans to African Americans. Without payday or other subprime lenders, they argue, many poor minorities would have no way of buying homes or keeping their lights on in an emergency.
It's a seductive argument, in part because it's based on a kernel of truth. Black Americans in particular have indeed been shut out of mainstream banks for decades. But as Corbett notes, loans with 300 percent interest rates are hardly a desirable alternative. Nonetheless, the subprime and payday loan industries have been somewhat successful in fending off stricter regulation, in large part because they have recruited African Americans and civil rights groups to make the argument for them.
One of the most active groups on this front has been CORE, a group founded by James Farmer and others in 1942, but which has long been more conservative than groups like SCLC. CORE has long been happy to take money from just about any corporate donor. Not long ago Mother Jones chronicled; its role in helping Exxon fight global warming regulations. But CORE has also been heavily involved in defending payday lending, a practice better known as "legal loan sharking" because of the enormous interest rates charged for the short-term loans.
According to CRL, the average payday loan borrower typically pays about $800 in interest for a $325 loan, and numerous studies have shown that payday lenders are disproportionately clustered in minority neighborhoods. Payday lenders are also notoriously ruthless debt collectors. Just one example: A New Mexico woman named Laura Cordova sued a payday lender in September 2006 after its collections workers started harassing her family, friends, and ultimately her boss and other people at her company, not just with phone calls but with visits to the office. Cordova was eventually fired as a result.
Yet CORE's national spokesman, Niger Innis, testified last year against a bill that would ban payday lending in Washington State, saying, "Payday lenders offer a choice that is not widely provided by traditional lenders anymore. Consequently, we think that payday lenders provide a choice that members of our communities should be allowed to make." The bill failed. In Georgia last year, when the payday lending industry tried to roll back a relatively new ban on payday lending there, CORE lobbied heavily to overturn it, along with the Georgia Legislative Black Caucus, whose chairman, Rep. Al Williams, told the Associated Press, "No one has explained to me how a person making $6 an hour and is about to get his lights turned off can go and get a loan."