Ghetto Loans for 'Mud People'?

As the full impact of the financial crisis was emerging, Rep. Michele Bachmann, a Minnesota Republican, took to the floor of the House to blame the Community Reinvestment Act for the crisis. “The government was goading these mortgage lenders, saying, ‘You’re redlining. You’re being discriminatory. If you don’t give loans out to marginally credit-worthy people we’re going to come after you.”

The act was a 1970s era law aimed at preventing redlining—the longstanding practice of banks refusing to lend to minority borrowers in neighborhoods that were outlined on maps in red ink. The Community Reinvestment Act had nothing to do with the crisis—most of the lenders who trafficked in subprime mortgages were outside of its reach. But conservatives, Bachmann included, were arguing that the government policy caused the financial meltdown by forcing banks to make loans to black people, who, once again, were being blamed for problems caused by racist practices designed to exploit them.

Even before Baltimore city officials followed the NAACP into court to file a lawsuit against Wells Fargo Bank, we knew that mortgage lenders had targeted minority borrowers, regardless of credit history, for predatory, high-rate, adjustable mortgages, that were designed to fail. But the sheer scale of the racism involved was only recently revealed by former Wells Fargo employees who testified in affidavits obtained by the New York Times. From the filings in the Baltimore case, we learned that loan officers referred to black customers as “mud people,” and to the subprime loans they sold them as “ghetto loans.” But it was the NAACP, whose relevance is often questioned, that filed the first suit against Wells Fargo.

Around the time of the NAACP’s centennial in February, writer John McWhorter expressed his frustration with the NAACP for continuing to focus on preventing discrimination against black people rather than on delivering social services to those who needed them. McWhorter wrote, “The issue is not whether there is ‘still racism’—of course there is; just as after you sweep off a patio, if you bend down and look up close there's ‘still dirt.’” But he insisted that the organization should focus on “the things that matter most,” such as the AIDS epidemic and better public education. Racial discrimination was no longer a force that could destroy the lives of black Americans trying to succeed.

The Wells Fargo case proves him wrong. The organized and insidious nature of the scheme to target black borrowers for subprime loans, regardless of their credit histories, affirms the very serious problem of continuing racial discrimination. The service organizations built to provide black folks with reputable loans and financial literacy training were overwhelmed by the volume and accessibility of institutions engaged in predatory lending.

The scale of the problem means that an organization focused on anything other than fighting discrimination would not be in a position to do very much about it. Predatory lending is a public policy issue—one that needs to be addressed through regulation at the state and federal level—and someone needs to be constantly advocating for those changes. That is the role of traditional civil rights organizations.

But the subprime debacle was made all the more tragic by the fact that those very organizations played a role in promoting subprime, predatory loans as a necessary recourse for communities that had long been denied access to credit. The argument seemed to be that the only available options were exploitation or no credit at all.

As Stephanie Mencimer reported for Mother Jones last year, Charles Steele Jr. of the Southern Christian Leadership Conference defended subprime lending in the pages of the Washington Post. The Post eventually noted that the SCLC had formed a partnership with CompuCredit, a company that issues subprime credit cards and payday loans. Steele wasn’t the only one with a relationship with CompuCredit. The organization appeared at career fairs and summits organized by Jesse Jackson’s Rainbow/Push Coalition. Al Sharpton was appearing in commercials for LoanMax.

The NAACP took money from subprime lenders as well. Wells Fargo had been a sponsor of their annual convention. But instead of honoring the implied agreement between civil rights groups and the companies that donate to them by letting Wells Fargo off the hook or even publicly defending them, the NAACP took Wells Fargo to court.

There was little reaction to the NAACP filing a class action lawsuit against Wells Fargo for targeting black borrowers with subprime loans. The stereotype of the aging civil rights organization looking to shakedown another company with scurrilous charges of racism was probably part of the reason most people shrugged their shoulders.

But in filing suit against Wells Fargo and lobbying Congress to pass laws aiding homeowners facing foreclosure, the NAACP was doing exactly what it should have been doing as an advocacy organization. Today’s methods of advocacy are less dramatic than the days when Walter White strode the halls of Congress browbeating senators into supporting his anti-lynching bill, and the issues facing the black community are less daunting. But ultimately the nature of certain problems facing black folks hasn’t changed: They can’t be solved by services, only by better public policy.

Still, McWhorter may have a point. Is the NAACP being as effective as it could be? Its influence in Congress has waned with its membership. The organization could have addressed the subprime lending crisis earlier than it did. And it’s hard to take the organization seriously when they’re sending out complaints about there not being enough black characters on television while public schools are in shambles, AIDS is ravaging the black community, and black people are being incarcerated at an astonishing rate. We need service organizations to address all those problems. But we also need a strong, effective advocacy organization to push for better public policy when services just aren’t enough. Maybe we need a better NAACP. But we still need the NAACP.

Adam Serwer is a writing fellow at the American Prospect. His writing has appeared in the New York Daily News, The Village Voice and Utne.