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About five years ago, Lenna Conroy lived near Austin with two kids to raise and support. She and her husband had split up years before, so when her children were approaching college age, Conroy decided she needed money to help them pay for school. After the divorce settlement took effect, the house she had lived in and worked to maintain during her married life was about the only thing of value left. So, Conroy took advantage of Texas' new home equity loan laws, and began searching for a company that would lend her cash on the value she had built up in her home.

She settled on Household Finance in Austin. She realized the pitfalls of a single woman trying to negotiate a major financial transaction alone, and was wary of being taken and cautious about what she signed.

First, she wouldn't even consider a "balloon payment" included in the mortgage — or a final payment on the principal that's worth almost as much as the original loan amount itself. After Conroy battled with the Household Finance representative because she did not want any unneeded insurance policy tacked onto the loan, she got her way about nixing a balloon payment, and was granted a loan close to $30,000 — enough to pay her children's way through four years in most Texas public universities.

However, after five years of making faithful payments to the mortgage company, Conroy noticed that her debt didn't seem to be diminishing much, and she found she still owed over $26,400, mostly due to the enormous fees and incredible 14 percent interest rate she had been charged by Household Finance.

Conroy became increasingly worried about the mortgage and the seemingly incomprehensible eternity of her debt. She reviewed her options of refinancing through other companies with better rates, but discovered that there would be severe penalties if her loan with Household Finance were paid off early — and that, conversely, if she missed a payment, the company could foreclose and take her house.

Panicking, Conroy asked if she could have Household Finance refinance the loan for her. The company cheerfully agreed. However, when all the fees of the refinance were totaled, and the new interest rate calculated, Conroy says her total debt would actually exceed $30,000 — the original amount of the loan she took out and had been monthly paying on for half a decade. The perpetual motion machine of debt hummed along like clockwork.

What happened to Lenna Conroy has many colorful names among those like her who have been cheated by such legal wheeler-dealers: The most commonly recognized is "predatory lending"; the technical term is "subprime lending."

"Predatory lenders" is an apt description for companies whose loans are actually designed to be unpayable — leading either to eternal debt for the victim (and eternal profits for the lender) or, if and when the borrower can no longer make the payments, the loss of the borrower's home. As one representative of the Consumers Union put it: "In their eyes, the one thing that 'qualifies' you for a loan is your inability to pay it."

According to studies done by Consumers Union and Austin Tenants' Council, predatory lenders have also been known to work hand-in-hand with real estate agents who sell houses that are structurally unsound (some even a few steps from being condemned). Such real estate agents sell these dilapidated homes to unwitting families, and when drastic repairs need to be made, the predatory lender conveniently shows up with a tempting loan offer for an equity loan to cover the cost of fixing the house.

Preying on the poor and the elderly — and people who just aren't well versed in such financial transactions — predatory lenders use various schemes to lure victims into nets of debt: hidden costs in the loan that inflate the payments; interest rates that increase over time due to hidden clauses in the original contract or because of penalties assessed for a single late payment. Interest rates can vary from around 10 to more than 20 percent.

Often the lender offers to refinance or consolidate debt, which dramatically increases the amount owed — a trick known as "flipping." Another trick is to include "financed credit life insurance" in the contract; this clause states that when the borrower dies, his or her assets go to paying off the debt, rather than to family members.

Nationally, the number of "subprime" home purchase and refinance loans has grown more than 1,000 percent in the last decade. As with payday loansharks and other businesses that tiptoe along legal boundaries, corporations are capitalizing on these unethical, though highly-profitable businesses. Although such predatory lending companies change their names and locations frequently to try to elude their bad reputations and legal action, major U.S. corporations are buying these businesses — albeit discreetly — and raking in the profits.

In late 2000, Citigroup, co-chaired by former U.S. Secretary of Treasury Robert Rubin, became the nation's largest predatory lender when it acquired Associates First Capital Corporation, and merged it with another of its affiliates, CitiFinancial Credit. At the time of the merger, Associates was one of the leaders in the "subprime" mortgage industry — having about $30 billion in outstanding customer loans, according to the company's own corporate records. Included in this amount were close to a half-million home equity loans and more than a million personal loans.

However, along with the pennies (or rather, silver dollars) falling from heaven, have also come negative publicity and subsequent legislative and court actions that have scrutinized Citigroup — the nation's leading financial services company — and the unethical practices of its newly acquired affiliates. In fact, Associates First Capital is proving to be costlier than just the $31 billion Citigroup paid for the company and its subsequent customer debts.

The spotlight that focused on Associates' tactics soon zoomed in on Citigroup as well, illuminating the corporation's performance in low-income neighborhoods. Soon after this exposure, the Federal Trade Commission filed a lawsuit against Associates First Capital, Citigroup, and CitiFinancial Credit Company, charging them with flagrant abusive lending practices and gross violations of the Truth in Lending Act, Equal Credit Opportunity Act, and the Fair Credit Reporting Act. Specifically, the Commission stated that Associates engaged in "systematic and widespread abusive lending practices, commonly known as predatory lending." As of Fall 2000, Associates was facing over 700 lawsuits involving charges of predatory lending.

Predictably, Citigroup launched counter-attacks against consumer-rights organizations, especially through the media and public relations campaigns. During a series of hearings on anti-predatory legislation held in Illinois last year, Jeffrey Setzler of the National Home Equity Mortgage Association said he was "highly offended" at the notion of his being lumped in with unethical lenders. In an emotional speech, Setzler stated that, "rather than being predators, our lenders have made loans available to millions of Americans who wouldn't otherwise have gotten them."

Yet despite the corporations' insistence that they are not involved in any of the unethical practices of "predatory lenders," in every case, their lobbyists have strongly opposed any proposed regulations to reign in such lending practices — spending millions in soft money dollars on fighting predatory lending reform acts.

According to the Center for Responsive Politics, which monitors campaign contributions, Citigroup donated more than $3.6 million to various Republican campaign committees, including $85,000 to the 2001 presidential dinner. The company contributed $1.6 million to Democratic election committees.

Meanwhile, Household Finance, where Lenna Conroy was scammed, has been the target of investigations and lawsuits in several states. In California, Household Finance admitted to violating the state's lending laws — 36,000 times. The mounting lawsuits prompted the company, based in Prospect Heights, Illinois, to reform some of its lending practices, including making forms easier to understand, disclosing full terms of agreements, and allowing borrowers to cancel loans within 10 days at no cost if they are not satisfied with the deal.

Still, the Association of Communities Organized for Reform Now (ACORN), the company's chief critic, is skeptical of Household Finance's "Best Practices Initiative" and contends it is a public relations gimmick. "We know that the public pressure brought by ACORN, by the regulators in California and in other states, and by injured consumers filing lawsuits around the country, is forcing Household to announce changes," Maude Hurd, ACORN national president said in a press release.

Regardless, Household Finance's reforms — or gimmicks — come too late for Conroy, who is loaded with more than $30,000 in debt.

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