Leading Up to the Big Fight

This is the second post in a series on the poverty industry and Gary Rivlin's book Broke USA.

The state of North Carolina has led the fight against the poverty industry, thanks to Martin Eakes, the founder of the Center for Responsible Lending. When Eakes began his career by starting Self- Help in the 1980’s, he never imagined it would take him to the forefront of the fight against the poverty industry. In Broke USA, Gary Rivlin provides commentary on how Eakes was motivated to help the working poor create wealth.

While serving the working poor throughout the mid 1980’s, Eakes discovered that the average white family had a net worth of $44,000 while the average black family had a net worth of under $4,000. The real issue was equity, which proved the importance of owning a home. Self- Help was able to help these families purchase homes valued between $30,000 and $50,000 by providing them with a loan almost as favorable as their prime counterparts. Borrowers from Self-Help paid an interest rate about a percentage point higher than the going conventional rate and a fixed 1 percent in fees and points. Eakes found that this was more than enough to compensate for the additional risk of lending to families of moderate income.

Self- Help was so busy serving the working poor that it wasn’t until Freddie Rogers walked into their office in 1998 that they realized industry how much the industry had changed. Rogers owned a home but was talked into refinancing by a company called Associates when he needed money to repair a drainage problem in his basement. Under his new loan with Associates, Rogers was paying 13.7% interest and now owed $47,500 when he had previously owed much less. Self- Help quickly realized that Freddie Rogers’ case was not an isolated incident; there were many more cases just like his.

After much internal debate about whether Self-Help should fight Associates, they decided they had no choice because of its sheer size. While Self-Help only had half a dozen store fronts across North Carolina, Associates had eighty. Associates also had Terry Bradshaw pitching its loans on TV, and they were generating nearly $1 billion a year in profits. Self-Help decided that if they didn’t address predatory lending, they would not really be achieving anything by putting people in homes. Self-Help, who had always been focused on helping families build wealth, decided it was equally important to help families protect their wealth as well. To do this, North Carolina needed to become the first state to pass an anti-predatory lending bill in the country.

Do you think Self-Help was right to fight Associates or did they overstep their boundaries? Let us know what you think, then check back to learn how the fight developed!