Center for Responsible Lending
302 West Main Street, Durham, NC 27701Phone (919) 313-8500 | Fax (919) 313-8595 | Email web@responsiblelending.org
Overview
The Center for Responsible Lending (CRL) describes itself as a “nonprofit, nonpartisan research and policy organization” working to eliminate predatory lending practices. But CRL’s relationships with its credit union and lending affiliates—as well as several of its donors with vested interests in the financial industry—paint a much different picture. As more is revealed about CRL’s role in the subprime mortgage meltdown, the group’s description of itself as a third-party watchdog seems more disingenuous. The onset of the current financial crisis has raised serious questions about its credibility, suggesting that CRL’s brand of “responsible lending,” characterized by the ability of unqualified borrowers to take out loans many of them are unable to afford, is a misnomer.
Affiliated State Organizations- Arizonans for Responsible Lending
- Oakland office of CRL
- Michael Calhoun, President and COO
- Coloradoans for Payday Lending Reform
- Connecticut Connecticut Fair Housing Center
- Erin Kemple, Executive Director
- United Way of Delaware
- Michelle A. Taylor, President and COO
- Iowa Coalition Against Abusive Lending
- Kentucky Coalition for Responsible Lending
- Mississippi Center for Justice
- New Yorkers for Responsible Lending
- Sarah Ludwig, Co-Director
- Josh Zinner, Co-Director
- North Carolina Coalition for Responsible Lending
- Michael Calhoun, President and COO
- Coalition on Homelessness and Housing in Ohio
- Thomas J. Allio Jr., Chair
- Vermont Housing Finance Agency
- David S. Adams, Chief of Programs Operation
- Virginia Partnership to Encourage Responsible Lending
- Wisconsinites for Responsible Lending
Herb and Marion Sandler
Herb and Marion Sandler are the billionaire founders of the Center for Responsible Lending. The Sandlers made a fortune in the subprime mortgage industry, thanks to the success of their bank, Golden West Financial.
Golden West and its subsidiary, World Savings Bank, were among the biggest sources of subprime mortgages, especially of adjustable-rate loans called option-ARMs. Herb Sandler is credited with the invention of the option-ARM, which his bank marketed as “Pick-a-Payment” mortgages. These loans were extraordinarily popular in the years preceding the subprime mortgage crisis, generating billions in profits for the Sandlers’ banking empire.
Recent exposés by “60 Minutes” and the New York Times have focused national attention on the Sandlers’ role in the subprime crisis. The Sandlers’ loans, described in the Times as “the Typhoid Mary of the mortgage industry,” are part of a second wave of toxic debt predicted to default over the next several years, hitting the economy with another $600 billion in losses.
In October 2008, “Saturday Night Live” parodied the Sandlers in a skit about the financial crisis. Their characters appeared in a mock congressional hearing, over the caption, “People Who Should Be Shot.” SNL and parent company NBC removed the skit from the Internet and reruns after the Sandlers protested loudly for censorship. That same strategy worked with the New York Times, which softened its criticism of the controversial couple several weeks after the article’s publication. However, both the Department of Justice and the Securities and Exchange Commission are pursuing investigations into claims that Golden West/World Savings lied to investors about the quality of its loans, as well as illegally luring customers into loans they could not afford.
The Sandlers made over $2.3 billion on the sale of their company to Wachovia in 2006, and they have used their fortune to fund organizations advancing their political aims. They have given millions of dollars to left-wing groups, including ACORN (radical activists implicated in election fraud investigations in over a dozen states), and the Center for Responsible Lending (a “consumer advocacy” front-group that lobbied for expanded subprime lending while promoting its funders’ business interests).
Black Eye
A review of CRL’s history and public disclosures suggests the following:
- CRL serves as a public relations attack dog for the Self Help financial network, a billion dollar chain of credit unions and lending funds. Despite its legal status as a 501(c)(3) “nonpartisan” nonprofit, there is a connection between Self Help’s revenue and CRL’s advocacy. Since CRL took on its lobbying and public relations in 2002, the Self Help credit and financial syndicate has seen tens of millions in increased revenue and assets. By 2006, CRL had increased its own assets by five-fold (from $900,000 to $4.5 million) and tripled its annual revenue (from $1.95 to $6.1 million)
- CRL’s “predatory” lending campaigns benefit the group’s own fundraising motives. CRL’s sworn enemies in the short-term payday loan industry are the Self Help Credit Union’s biggest market competitors—raising serious conflict of interest questions about its advocacy. CRL spokespeople are regularly quoted in news articles as trusted experts on mortgages, but at least two of CRL’s largest donors have made a fortune off Americans’ mortgage woes: billion-dollar hedge fund manager John Paulson of Paulson & Company, and option adjustable rate (or “Pick a Pay”) mortgage pioneers Herb and Marion Sandler, formerly of World Savings Bank/Golden West Financial.
- CRL’s “studies” are a public relations tool, clouded by a pre-determined agenda. Though it is often referred to as a think tank in the mainstream press, CRL’s advocacy-driven research has been criticized by a number of respected academic professionals—even economists from the Federal Reserve.
- CRL’s policies have left consumers worse off. For instance, studies have shown that CRL’s campaign to ban the short-term payday lending industry has harmed consumers in the states where it has succeeded. And despite claiming to be a consumer advocate, CRL has pushed for lending policies that downplay the risks involved in lending to unqualified borrowers, thereby contributing to the current mortgage crisis.
- Despite its legal status as a “nonpartisan” group, CRL is closely allied with individuals and activist organizations that are known to be highly partisan. Its donors include high-profile Democrats such as George Soros and Herb and Marion Sandler. And CRL has partnered with radical left-wing activist groups such as the Association of Community Organizers for Reform Now (ACORN).
Like other deceptively named activist organizations (like the Physicians Committee for Responsible Medicine, an animal rights group whose membership includes less than 4 percent actual physicians), there is more to CRL’s “responsible lending” efforts than meets the eye. While its professed mission to expand homeownership and end unfair lending practices seems like a virtuous one on the surface, many of its accomplishments have set back the consumers it claims to protect.
“Self Help” 101
CRL was founded in 2002 as the lobbying and advocacy arm of the powerful billion dollar “Self Help” financial network: Self Help Credit Union, Self Help Ventures Fund, Self Help Community Development Corporation, Self Help Services Corporation, and the Center for Community Self Help. Under the leadership of its CEO (and Self Help founder) Martin Eakes, CRL has built a multi-million dollar lobbying and PR machine under the guise of exposing unethical financial industry practices.
But the Self Help network behaves in ways that are very close to the accusations CRL hurls at other financial institutions. Its credit union’s rate of delinquent loans is nearly seven times its peers, according to the National Credit Union Association. And Self Help has taken its low-income customers to court – including local charities and small businesses – for loans as little as $96. A company founded by CRL's Herb and Marion Sandler, Golden West Financial, is under investigation by the United States attorney’s office in San Francisco for predatory lending practices.
CRL’s targets also offer financial products that are competitive with the ones made available by the Self Help institutions. For example, the popularity of short-term payday loans threatens the Self Help Credit Union. But by painting its competitors as “predatory” (or even racist), CRL has made impressive progress in helping these Self Help branches maintain a hefty share of the market:
- The Self Help Ventures Fund took in about $21.3 million in “excess” in 2006 -- a 30 percent increase in profit since CRL was created. The Ventures Fund alone has nearly a billion dollars in assets and takes in between $50 and $65 million in revenue per year. As one consumers’ rights group pointed out in a 2008 report, “If the Venture Fund were officially a for-profit entity, its profit margin would be a staggering 40 percent – far higher than the margins of the lenders Self Help and CRL attack.”
- The Self Help Credit Union’s assets have jumped to over a quarter-billion dollars ($292 million) as of November 2007, according to the National Credit Union Administration.
Factor in CRL’s legislative victories against Self Help’s opponents and the accomplishments of this self-styled responsible lending crusader appear even more impressive. As of November 2008, CRL had succeeded in pushing through short-term payday loan bans or interest rate “caps” (which limit interest at less than $1.50 on a $100 2-week loan) in New Hampshire, Ohio, Oregon, Virginia, Arkansas, Georgia, and its home state of North Carolina.
And CRL itself has grown immensely over the past several years. In 2006 alone, it took in $6.1 million in revenue – a staggering increase from its $1.95 million in 2002.
Few groups can compete with the resources of the lucrative CRL/Self Help network. Federal disclosures show CRL spent more than $1.7 million lobbying for bankruptcy and finance laws from 2004 to 2007. As of October 2008, CRL was on track to match that number in a single year. According to the Associated Press, CRL spent $280,000 lobbying in the third quarter of 2008 alone.
The expansion of CRL’s lobbying and PR empire has not gone unnoticed by the potential beneficiaries of its campaigns. From Wall Street moguls to the radical activists from ACORN, CRL’s muscle on Capitol Hill and in the media has piqued the interest of a peculiar range of like-minded allies.
Rotten Associations
CRL’s billionaire Self Help affiliates are not the only ones with a stake in its activities.
- Two of CRL’s founders and largest donors, Herb and Marion Sandler, made their fortune off option-ARM mortgage products that critics suggest contributed to the current financial crisis. Well-known for their philanthropy, The New York Times pointed out that Sandlers’ charity “intersected most directly with their business interests” in 2002 when they founded CRL. While CRL was attacking certain mortgage lenders for being predatory, the Sandlers were beginning to draw criticism over the option-ARM, or “pick-a-payment,” mortgages at the heart of their Golden West Financial/World Savings Bank empire. Presumably operating under the assumption that housing prices would continue to increase, option-ARM’s allowed thousands of Americans to acquire more debt than they could afford by making monthly mortgage payments smaller than their interest charges.
An estimated two million Americans currently hold option-ARMs, which are “now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry,” according to a December 2008 New York Times report (“Once Trusted Mortgage Pioneers, Now Pariahs,” December 25, 2008). But by the time housing bubble burst and thousands of option-ARM borrowers began to default, the Sandlers had already unloaded $122 billion of these “pick-a-pay” loans on Wachovia—and walked away with billions for themselves. World Savings is now being sued by borrowers who claim they were victim of predatory lending practices. The United States attorney’s office in San Francisco announced dual inquiries into potential predatory lending practices in November 2008.
- CRL accepted a large donation from a hedge fund that made billions off the subprime credit meltdown. In 2007, Paulson & Company donated $15 million to CRL after it reaped the largest windfall in Wall Street history by short-selling the subprime market. The timing of that donation correlated with a bankruptcy bill that CRL was lobbying for aggressively – and which would have made Paulson billions more if it passed.
- CRL and ACORN are close allies. Since CRL’s founding in 2002, ACORN has made full use of its powerful lobby and PR machine. Over the years CRL and ACORN have joined forces on a number of campaigns. It’s no surprise, given that CRL and ACORN share the same agenda: the expansion of homeownership as an end in itself—no matter what the consequences to the U.S. economy. Since the onset of the 2008 financial crisis, several of those joint efforts have been geared towards the establishment of “affordable housing” handouts, commonly known as the “ACORN slush fund.”
Much of CRL’s credibility in government in the media stems from its steady flow of “studies” on predatory lending practices. But as at least one expert has pointed out, the results of CRL’s research are likely to be determined long before any data collection or analysis takes place.
CRL’s Slanted “Research”
Though CRL is regularly referred to as a think tank, its academic and intellectual credentials are hardly enough to fit the bill. Many of the claims CRL advances are biased assertions with little hard evidence provided in support. Other research has been criticized by respected academics as slanted and methodologically unsound.
Federal Reserve economists and other established experts have criticized CRL’s research as slanted and unreliable:
- In a racially charged report entitled "Race Matters," CRL implies that cash advance stores unfairly "target" minority neighborhoods simply because there are more of them in minority neighborhoods. Thomas Lehman, an Indiana Wesleyan University economics professor, said that the research "contains severe weaknesses and presents conclusions that are overstated at best, and misleading at worst." Lehman concluded, "the overall tone of the study suggests a lack of objectivity perhaps motivated by an ideological bias against the payday lending industry, which may explain why (the authors) appear to overstate their case given the weakness of their research."
- A 2006 report called "Financial Quicksand" also relies on weak research and methodology. It relied on nearly 20 often questionable assumptions and 53 estimates, with data from areas unrepresentative of the total U.S. population. In addition, the analysis is based on the incorrect assumption that a person taking five or more loans a year is "flipping" them back-to-back; in fact nearly half of all states prohibit "flipping" loans and many limit rolling over the loans into larger ones. Research from the Federal Reserve contradicts these CRL reports and concludes that short-term payday loans are a legitimate part of consumer lending options.
Misguided Policies
As this lack of credibility among respected experts suggests, CRL’s self-serving version of “responsible” lending is deeply flawed from a policy perspective. In the instances where CRL’s prescriptions have been put into practice, the results have consistently been to the detriment of consumers.
Banning Short-Term Payday Loans
CRL’s most important policy success to date was a well-funded campaign to ban short-term payday lending in its home state of North Carolina. CRL and its allies repeatedly claimed that credit unions would step in to fill the void in borrowing options caused by the ban.
However, in November 2007 Federal Reserve economists released an analysis of the effect of North Carolina’s payday loan ban; their findings show the ban significantly hurt consumers. Federal Reserve research demonstrated that payday lending was actually better for consumers than the large fees charged by banks and credit unions such as Self Help, CRL’s primary sponsor.
In a relatively rare academic rejoinder to activist talking points, Federal Reserve researchers specifically rebutted CRL’s claims that a ban on short-term payday lending in Georgia would save residents $154 million. Instead, the Federal Reserve researchers concluded, "it cost them millions per year in returned check fees."
In February 2008, researchers from George Mason University announced that CRL-backed bans on cash-advance lending reduced consumers’ likelihood of surviving financial crises. They concluded that having the payday lender option increased a borrower’s probability of "financial survival" – paying for necessities like housing, groceries, utilities and other bills without facing economic collapse – by 31 percent.
The Institute for Liberty concluded that "under Eakes’ [CRL’s founder] lending reforms, North Carolina leads the U.S. in foreclosures. In a year-over-year comparison, the state’s foreclosure rate outpaced the nation with a whopping 146% increase vs. 94% nationwide."
Extending Mortgages to Unqualified Borrowers
That CRL received funding from some of the largest benefactors of the mortgage crisis should raise serious concerns about its positions on mortgage lending policy. But on top of that, analysis of the subprime credit crisis has shown that a primary cause of the crisis was abandonment of risk – exactly what CRL, with groups like ACORN, have been demanding under the guise of “affordable housing.” These groups have pushed for the extension of credit to people who couldn’t afford to pay.
CRL/Self Help’s approach to financial policy hasn’t even succeeded within its own financial network. One 2008 report estimated that Self Help’s delinquency loan rate is nearly seven times higher than comparable credit unions.
And when CRL accepted a $15 million donation from Paulson & Company, analysts from The Financial Services Roundtable and other groups warned that the bankruptcy bill CRL and Paulson were pushing for would have exacerbated America’s mortgage crisis if passed. The bill would have allowed federal judges to restructure mortgage terms and lower payments, also known as a “cram-down.”
At the heart of CRL’s definition of “responsible” lending is the negation of risk as a factor in lending policy. Whether under the guise of “predatory lending,” “affordable housing,” or “preventing foreclosures,” CRL’s policy prescriptions put its own political interests and ideology ahead of the health of the U.S. economy. Ironically, responsible lending practices have declined as a result of CRL/Self Help’s PR and legislative battles.
CRL’s Nonpartisanship
Public disclosures show that this “nonpartisan” organization has extremely close ties with some of the most high profile Democrats in the nation. Aside from its suspicious ties with ACORN and $9.7 million-plus in funding from the foundation of known left-wingers Herb and Marion Sandler, CRL has received at least $100,000 from George Soros’ (of “General Betray Us” and MoveOn.org) Open Society Institute.
400 Faces Project
CRL launched a website called “400 Faces of Payday Lending”, claiming to represent 400 borrowers who have been harmed by payday loans. As of August 2009, however, the site only contained 4 anonymous stories.
