American Financial Services Association

1. American Financial Services Association Consumer Advocate Perspective: Views on Risk-Based Credit and Access to Credit Kirsten E. Keefe

2. Changes in the Financial Services Industry Americans are spending more of their disposable income on servicing debt and to be a part of the financial services industry. The potential for huge short-term profits has replaced a long-term vision that promoting asset-building will generate profits.

3. Impact on Consumers Low-income and middle-income Americans are impacted the most by their contributions to profits in the financial services industry in fees and costs. The result is a steady decline in the ability of the average American to build assets and wealth.

4. Impact on Communities The ultimate impact is on our communities. As Americans pay more to the financial services industry, less is available to spend in local stores, on services, on taxes and other wealth building functions in local economies. Increasing fees and costs for financial services decreases the well-being of communities in which we all live.

5. Impact on Populations • Minorities • Seniors • Military Personnel • Women • Low-income neighborhoods • Middle-class Americans

6. “Risk-based pricing” is a Misnomer Unfair lending practices that gouge consumers is not risk-based pricing. Americans need responsible, fairly priced subprime products that allow them access to credit. Huge profits in the financial services industry evidence that the higher costs imposed on consumers are not simply based on the higher risks incurred.

7. Financial Services Issues • Mortgage lending a. Shift to profit-driven lending rather than mortgage lending being a tool to promote homeownership in America b. Lack of responsible subprime mortgage lending products

8. Financial Services Issues 2. Subprime mortgage lending • High-cost loans • Adjustable rate mortgages with exploding interest rates • Failure to make sure borrower can afford loan • Inflated and fabricated income • No-doc loans • Misplaced trust in lenders • Inflated appraisals • Broker-driven loans • Broker and loan officer compensation • Pre-payment penalties

9. Financial Services Issues 3. Mortgage servicing • Customer service • Inadequate loss mitigation options • Investor restrictions • Default and foreclosure • Unreasonable fees and costs • Under-funded foreclosure prevention counseling and assistance

10. Financial Services Issues 4. Bank fees • Insufficient fund fees/overdraft protection programs • ATM fees • Exempt income in bank accounts freezes

11. Financial Services Issues 5. Credit cards • Interest rates • Fees • Universal default clauses • Arbitration clauses

12. Financial Services Issues 6. Refund anticipation loans (RALs) 7. Automobile financing

13. By-products of Financial Services Practices • Debt collection abuses • Debt consolidation and counseling • Foreclosure consultants and deed theft • Check cashers and payday lending • Credit reporting violations and increased use of credit scores as means to increase pricing

14. What Keeps Me Up at Night • Rapidly rising foreclosure rates • Impact on families, communities and our local and national economies • Decreasing, rather than increasing, standard of living for the average American and what this means for our society and nation • Depletion of middle-class assets • Indentured servitude of lowest income Americans • House of cards that Americans are living in and the strength of our national economy • Potential for increased bankruptcy filings

15. Americans for Fairness in Lending (AFFIL) A Campaign to Change the Message and Build Coalitions

16. The Foundation of AFFIL A well-informed public and basic regulatory protections are necessary to have a marketplace that works and can thrive. A well-informed public moves legislators to pay attention and ultimately make change.

17. Who is involved? AFFIL is a bi-partisan effort including national groups, state coalitions, universities, consumer advocates, the military, faith-based organizations, community groups and grassroots organizers.

18. AARP ACORN AFL-CIO California Reinvestment Coalition Center for American Progress (CAP) Center for Community Change Center for Responsible Lending (CRL) CFED Community Reinvestment Association of North Carolina (CRA-NC) Consumer Action Consumer Federation of America (CFA) Consumers Union Demos International Union, United Auto Workers NAACP National Association of Consumer Advocates (NACA) NCLC National Community Reinvestment Coalition (NCRC) National Council of La Raza National League of Cities National Urban League Neighborhood Economic Development Advocacy Project (NEDAP) Public Citizen United Professionals U.S.PIRG Woodstock Institute AFFIL Partners and Allies

19. GOALS OF AFFIL • Awareness: Call America’s attention to abusive credit problems. • Choice: Make Americans aware of constructive, not destructive, credit options.

20. GOALS OF AFFIL • Collaboration: Bring organizations and people together to. . . - Coordinate our efforts, - Unify our voices to bring one strong message to the public, and -Share resources

21. GOALS OF AFFIL • Change: Build a groundswell of support, shine one spotlight and transform the environment in which the rules are made to ultimately. . . - Put credit and debt issues on the national agenda, - Bring about marketplace change, and - Re-regulate credit

22. AFFIL’s Six Principles ofFairness in Lending Lending is necessary in our society and can be helpful in building and preserving community and individual assets. Our laws, however, allow lenders to encourage and profit enormously from personal debt. We propose six components of fair lending against which all credit practices and products must be tested – across the life of the loan and its collection: • Responsibility • Justice • Equality • Information • Accountability • Law & Enforcement

23. Responsibility Lenders must gauge ability to repay and offer borrowers the most affordable and well-suited products for which they qualify. Lenders should demonstrate commitment to the building of personal assets.

24. Justice All participants in the making, collecting, holding and buying of debt have a duty to deal fairly with the borrower. It is unjust to prey upon anyone, particularly on those who are vulnerable due to age, health, language, education or other socioeconomic circumstances. It is unjust to charge exorbitant interest rates and fees, to change terms once agreed, and to deny anyone their day in court.

25. Equality We all must have equal access to appropriate and fair products and services regardless of race, gender, language, national origin, physical/mental well-being, education, lifestyle or socioeconomic status. All discriminatory lending practices must be abolished.

26. Information We require full disclosure of all costs, fees, loan terms, penalties and collection practices in language that is clearly understood by the borrower. Although information is a necessary component to a fair marketplace, it is not a substitute for fair terms, fair treatment and effective regulation.

27. Accountability Lenders must track and report their lending activity. Only with comprehensive reporting can we ensure that the marketplace is free from illegal and unethical practices and that consumers are safe to shop for credit products without risk of being overcharged or directed to inappropriate loans.

28. Law & Enforcement Our government must establish essential consumer safeguards in the lending marketplace with laws that hold all members of the lending industry liable for activities throughout the life of the loan and its collection. There must be mechanisms for reporting abusers, and compensation for victims of lending abuse.