ONLY THE LOAN-LY

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The loan sharks may have donned pinstriped suits, but they are still circling around New York’s poorest residents, a new report finds. The organizing group ACORN released a study last week documenting that so-called predatory lenders, which make loans at sky-high interest rates to people traditional banks won’t lend to, are a growing presence in New York City’s poor and minority neighborhoods.

Predatory or “sub-prime” lenders like The Money Store and Delta Funding provide consumer and home loans to “sub-prime” borrowers: people with credit ratings lower than the highest rating of “A”. These firms typically tack on 2 to 3 percent more in interest charges than regular banks-a difference that can add up to $65,000 to the financing costs of a 30-year, $100,000 home loan. They also tend to charge higher closing costs than banks do, and use ploys like balloon loans, which may require a massive lump-sum payment at the end of a loan.

ACORN’s report finds that predatory lenders made roughly a quarter of all loans in minority and low-income areas. While only 10 percent of traditional loans went to minority neighborhoods, 40 percent of sub-prime loans did.

The result? “We still have two separate and very unequal financial systems,” says New York ACORN president Gwen Jacobs. “There’s one for the rich and one for the poor, one for whites and one for others.” Firms like Delta Funding Corp., which paid $6 million this summer to settle a lawsuit by the state Attorney General for unfairly targeting minorities, are well-known. But as ACORN’s Bertha Lewis points out, “Delta is just the poster child. It is not the only story. This is pervasive.” Nationwide, sub-prime lenders provided 1.4 percent of conventional loans in 1983–but 10.2 percent in 1998. Loans by predators have increased by 40 percent every year since 1993.

The report kicks off ACORN’s nationwide financial accountability campaign. In New York City, the group plans to protest a major-but yet to be named-bank next week.

ACORN is targeting banks because studies show that anywhere from 20 to 30 percent of the people who borrow from sub-prime lenders could qualify for regular, cheaper bank loans. ACORN blames banks for not doing more to attract those credit-worthy customers, and denying loans to many minorities and low-income people who do apply.

Jacobs says the banks’ failures gives the sub-prime lenders an opening. “That’s how they get their foot in the door-because people are desperate.”