Salt of the Earth: Social Justice news June 2000

Social justice news
June 2000

U.S. Cold War spending—the neverending story?
Death penalty moratorium updates
Loansharks in suits: when lending becomes a crime

U.S. Cold War spending—the neverending story?
Christmas may come early this year for U.S. defense contractors. Recent legislative moves in Congress may mean that the 2001 Pentagon Budget could run as much as $4.6 billion higher than the Clinton administration's budget request.

On May 18, the House passed its version of the fiscal 2001 Defense Authorization bill (HR 4205) 353-63. The House requests $309.9 billion for defense—$4.6 billion more than the $305.3 requested by the Pentagon and a little more than the $309.8 billion currently being bandied about by the Senate. No further action on the defense budget is expected earlier than the week of June 5 when the Senate returns from its Memorial Day Recess. Both Senate and House bills represent a 4.4 percent increase in defense in real dollars (adjusted for inflation) from the fiscal 2000 level of $293 billion.

Many members of Congress justified the budget hikes on a "readiness crisis" in the US military. If readiness truly is a problem, some critics wonder why so much of the additional spending has been earmarked for new weapons systems. Of the $4.6 billion added by the House, $2 billion (43 percent) went to unrequested weapons systems, according to the Council for a Livable World. Meanwhile the House added only $868 million (19 percent) to operations and maintenance (the account that includes most readiness funds). Personnel accounts were not increased in the House budget plan.

The Senate budget is even more generous to new weapons systems. Procurement accounts received a $3 billion increase over the President's request. That means unrequested weapons received 67 percent of the Senate's increase, while operations and maintenance accounts were raised only $150 million, and personnel accounts actually suffered a $170 million cut.

The 2001 budget proposal includes $1.9 billion for National Missile Defense (NMD). Total NMD funding for 2001-2005 is $10.4 billion—$2.3 billion more than last year's request. In all, the request for ballistic missile defense (BMD) programs for 2001 is over $4.7 billion.

While the 2001 military budget appears likely to increase, the same can't be said for other discretionary spending next year. An April 13 budget resolution proposes cutting non-defense spending by more than $19 billion below the inflation-adjusted 2000 level and almost $29 billion below the amount requested in the Administration's budget proposal. The Resolution also calls for tax cuts totaling at least $150 billion over the next five years. The Budget Resolution is not binding (it does not require Presidential approval), but it is a significant guideline for congressional spending priorities during the coming fiscal year.

U.S. military budgets are projected to remain at or near the Cold War average of $298.5 billion (1996 dollars) as the Pentagon insists that its "two war" strategy continue. The "two war" strategy calls for the capacity to wage and decisively win two major conflicts conducted simultaneously. Military spending is projected to rise to $331 billion by 2005. The U.S. military continues to spend three times more on defense than the total spending of all its purported adversaries (including Russia and China) combined.—Kevin Clarke

Additional resources:
Center for Defense Information
Council for a Livable World
Department of Defense—Defenselink
National Priorities Project
2001 Discretionary Budget (from CDI)
US vs. world military spending (from CDI)

Death penalty moratorium updates
* In early May Illinois Governor George Ryan told journalism students at Northwestern University that it was unlikely any further executions would take place in Illinois while he is in office. Although the governor is in favor of the death penalty he issued a moratorium on the death penalty that went into effect January 31 of this year. Ryan's decision followed the exoneration of the thirteenth death row inmate since the death penalty was reinstated in Illinois in 1977. The state has carried out 12 executions in that time.

A 13-member commission will report back to Ryan on the death penalty, but he is not certain their findings will alter his decision. " . . . I may never be satisfied with what they come up with," the governor said. "I'm not sure that anybody can come back and say, for a fact, that the death penalty provisions have been fixed."

* A national death penalty moratorium bill was introduced April 26 by Sen. Feingold (D-Wis.) and Sen. Levin (D-MI). The National Death Penalty Moratorium Act of 2000 (S. 2463) would suspend executions at the federal and state levels while a national commission reviews the death penalty.

* Washington State Governor Gary Locke signed a law giving death row inmates and those serving mandatory life sentences the right to have evidence in their cases tested for DNA. New York and Illinois already have such legislation.

* The most recent local governments to call for death penalty moratoriums were Montgomery County, Maryland and Buffalo, New York. They join Atlanta, Baltimore, Chapel Hill, Philadelphia, Rochester, San Francisco, among others.

* New Hampshire's House voted to abolish the death penalty by a 28-vote margin. The bill now goes to the state senate for approval.

* South Dakota was the most recent state to forbid execution of the mentally ill. It was the 13th state to do so.

* Indiana Governor Frank O'Bannon has called for a review of the death penalty in Indiana. The Criminal Law Study Commission will look into safeguards to prevent wrongful convictions; to find out whether the death penalty is racially biased; and to learn if existing rules ensure attorneys are qualified to handle death penalty cases.

Loansharks in suits: when lending becomes a crime
When people with low incomes or bad credit cannot raise cash or get conventional loans for needs like home or auto repairs or clothing for their children, or become disabled and unable to work, they sometimes turn to so-called fringe or predatory lenders—companies that will loan cash on a paycheck or car title and who charge interest nearly twice the return on investment for traditional consumer lenders. Among the worst offenders, a recent Business Week (April 24, 2000) article notes, are "mortgage lenders who goad low-income homeowners into refinancing their existing mortgages with new loans that carry such high rates, hidden fees, and hidden balloon payments, that they virtually guarantee default—and foreclosure."

Nationally, the U.S. Department of Housing and Urban Development (HUD) estimates that the volume of subprime loans has grown from $20 billion in 1993 to more than $150 billion in 1998. According to a National Training and Information Center report, residential foreclosures in Illinois have increased almost 400 percent since 1993, and in Chicago, according to the Chicago Sun-Times, from 69 in 1993 to almost 2,400 in 1999. The number of subprime loans issued in Chicago went up from 3,137 in 1991 to almost 51,000 six years later.

Contributing to this huge increase, critics and state and city government allege, are unscrupulous lending practices involving misleading marketing and high pressure lending tactics; excessive fees and interest rates; unnecessary credit, life, and unemployment insurance; and hidden loan terms. In most cases predatory lenders can't lose once they get a homeowner to sign on to a new loan because the value of the home—no matter its condition—exceeds the value of the loan. These lending practices and high-cost loans not only strip equity from homeowners who cannot afford to repay but contribute to an increase in abandoned homes that leads to greater drug and other criminal activity in and around these newly vacant homes.

Predatory lenders take advantage of the poor and borrowers with bad credit, who are equity-rich but cash-poor. Many of the borrowers are members of minorities, are older, or are veterans—working class people who may have lived in their homes for decades. Studies have shown a high correlation between areas where fringe lending occurs the most and unusually high numbers of foreclosures. Most of these are low-income and minority neighborhoods. "There is a racial element to subprime lenders and whom they target," Russell C. Wirbicki, executive director of Chicago's Horizon Legal Center, told Business Week. "I see the poorest of the poor being preyed upon. It's the opposite of redlining."

But it is not only small, local fringe lenders who are involved. Many of these outfits—like the paycheck and title lenders Title Brokers, Ace Cash Express, EZCorp., and Cash America—are financed by major financial firms and banks, including Lehman Brothers, Merrill Lynch, Bank of America, Greenwich Capital Markets, Prudential Securities, Salomon Smith Barney, and Citigroup's CitiFinancial. These major institutions find in fringe lending a new credit market to supplement the traditional consumer loan market.

To address the problem of predatory loans, Illinois, Maryland, Minnesota, Missouri, and New York have proposed anti-predatory lending legislation. The Illinois bill, which would have created tighter regulation of fringe lenders, was eventually gutted by an amendment after, critics say, pressure by opponents such as mortgage brokers' and bankers' associations. Subprime lenders argue they fill a need for emergency loans that had not been available to low-income people before, and they justify high interest rates and fees by pointing to the high-risk credit they dispense. They also assert that existing state and federal laws already cover abuses within their industry.

In Chicago, city officials argue that it is precisely the lack of enforcement of state laws that contributes to the problem. To address the regulatory gap, the city recently proposed licensing mortgage brokers and requiring banks that want to hold city deposits or underwrite city bond issues to sign sworn statements verifying they do not engage in predatory lending or have a plan to disengage from such lending.

While no one is forcing hard-pressed people to respond to economic pressures in their lives by turning to fringe creditors, support for a laissez faire aproach to the industry may diminish before the increasing evidence of the often fraudulent and otherwise unethical methods of many lenders. Some have been caught paying off existing home loans without the homeowner's consent, targeting markets by race and economic class, and using misleading and manipulative selling tactics.

Regulation and enforcement of lending abuses are frequently difficult. As Ellen Seidman, the director of the federal Office of Thrift Supervision, told Business Week, "The federal legal system is very disclosure-oriented. If you disclose, you can do almost anything." And fringe lenders and their institutional backers do disclose, although even when they do they sometimes mask fringe loans by bundling them with conventional ones.

Criticism has not been limited to the state and local levels. In a March speech before a community reinvestment group, Federal Reserve Chairman Alan Greenspan expressed concern over "abusive lending practices that target specific neighborhoods or vulnerable lending segments of the population and can result in unaffordable [mortgage] payments, loss of equity, and foreclosure," the Associated Press reports. The Fed has called on regulators from a number of various federal agencies to develop options such as stricter enforcement rules and new legislation to deal with predatory lending. Added Federal Trade Commission chairman Robert Pitofsky, "These cases involve some of the worst frauds I've ever seen in the consumer market. You have very vulnerable populations preyed upon by lenders whose goal is foreclosure."

HUD secretary Andrew Cuomo has also announced the formation of a national task force on predatory lending, saying, "The economic boom that has produced the highest homeownership rate in history has a downside, and that is predatory lending. Though HUD has moved aggressively to eliminate thousands of unqualified appraisers and dozens of lenders from FHA housing programs," Cuomo continued, "the simple fact is that many of these same lenders and appraisers are in the conventional mortgage market often charging exorbitant fees, imposing onerous terms, and saddling families with debts they'll never be able to retire."

How do Catholics respond to the problem of fringe credit and predatory home refinancing in particular? Bill Purcell, director of the Office of Peace and Justice for the Archdiocese of Chicago, which has been active in opposition to predatory lending, points to the beginning of the U.S. Catholic Bishops' 1986 pastoral letter on Catholic social teaching and the U.S. economy, Economic Justice for All. Here the bishops cite principles "drawn directly from Catholic teaching on economic life," among them the principle that all economic life should be shaped by moral principles, and economic choices and institutions must be judged by how they protect or undermine the life and dignity of the human person; that a fundamental moral measure of any economy is how the poor and vulnerable are faring; and that all people have a right to secure the basic necessities of life, including shelter. "Catholics in the United States," the bishops wrote, "are participants in a powerful economy."

The U.S. economy is more powerful than ever, and certainly more powerful than when the bishops wrote the economic pastoral almost 15 years ago. Within this economy subprime mortgages have become an industry worth billions of dollars, an industry that deals directly with the choices people and institutions-both borrowers and lenders-make. The practices of this industry also directly effect the ability of people to own homes and secure decent shelter for themselves. Moreover, because fringe lenders often target the poor, how the poor fare in it is one of the moral barometers of our expansive economy.

Purcell advises Catholics first to be aware for themselves of predatory lending practices, not only to protect themselves but also to be aware of this kind of lending taking place in their communities, perhaps with the support of financial institutions of which they are customers. He also urges Catholics to advocate with their municipal and state governments to make sure adequate regulatory legislation exists and is enforced. Catholics should also support low income-controlled groups that organize to counter the influence of financial interests. Efforts by church and other community organizations to make housing available and affordable are also an area where predatory lending can be fought, and Catholics can acquaint themselves with what their dioceses and communities are doing in the area of housing.

"Catholics should make sure they know their Catholics social teaching by reviewing it and reflecting upon how they are called to act within themselves and within the community so that human dignity is not assaulted by the economic system," Purcell says. "Putting faith first means putting community before individual needs."—Joel Schorn

Additional resources
The American Association of Retired Persons has a page devoted to understanding predatory lending practices.

The National Consumer Law Center offers a wide range of materials and services relating to remedies for home equity loan scams, preventing foreclosures, avoiding second mortgage scams, dealing with abusive debt practices, and correcting credit report errors.

The National Association of Consumer Advocates and the National Association of Consumer Attorneys offer information on consumer legal services.

HUD's predatory lending joint task force

The Humanitarian Resource Institute has collected a list of sites dealing with predatory lending and other consumer credit, finance, and community needs.

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