In the 1970s, as a very new lawyer, I moved to California. I did consumer protection; there was such a thing back then. The city of Los Angeles was still reeling from a lien equity scandal, dating to the ’60s, in which unscrupulous lenders and building contractors misled homeowners into signing usurious or fraudulent contracts. Thousands of mostly elderly and minority families lost their homes to foreclosure as a result. Back then too, interest rates were calculated by a dizzying array of impossibly convoluted accounting methods–all to conceal true costs.
The personal devastation wrought by this underhandedness was great enough to become the fuel for social movement. Laws were passed requiring contracts to display the interest rate in clear, conspicuous lettering and for that rate to be computed according to a standardized method. (That’s the now familiar number we call the APR.) Caps were placed on the interest that could be charged so that it did not compound faster than any working person could pay off. "Cooling off" periods–such as three days to change one’s mind–were mandated for businesses where hard-sell tactics had been particularly pervasive.
Many of those laws have been constricted or ignored since. Loan-sharking has resurged with global force. With the Bush Administration’s disdain for regulation, the "ghetto lending" practices of the 1960s have metastasized, spreading across class, race and regional boundaries. Intersecting with the massive pooling of mutual and hedge funds, this corruption has had international consequences that dwarf Enron and the savings and loan scandals of the ’80s. If such practices began in neighborhoods where there was disrespect for the property rights of certain Americans, it’s come round to bite us in the tail. We are all in the ghetto now.
I spent the past few days in New Orleans. Nearly three years after the hurricane, it’s still a city in mourning, more riven than ever. About 40 to 50 percent of the population has not returned, most because they have not been able to. Even homeowners with insurance have complained that some companies refuse to pay them directly for repairs, instead giving the money to the banks that hold their mortgages. Such testimonies make me guess that what these homeowners had purchased was not insurance for repairs but so-called "credit insurance"–where policyholders pay the insurer to protect not them but their creditors in case of disaster. It’s a kind of insurance that was outlawed in most places thirty years ago. It’s common everywhere now.
Rents have soared in New Orleans because of decreased housing stock. Yet the City Council recently OK’d the demolition of virtually all surviving public housing–large brick-and-mortar buildings, mostly with blown-out windows, all eminently repairable. Today, the Lower Ninth Ward is an eerily lush plain of overgrown sadness. Of its 15,000 residents before the storm, only 1,400 remain. One intriguing embellishment upon this expansive devastation is the flutter of little signs affixed to the remaining lampposts: Easy Terms! Refinance With Us! No Money Down! I couldn’t help but think of my first cases in LA and prayed that someone was having a good close look at the fine print. Local newspapers are full of disturbingly gushy articles about realtors who slaver over the historic row houses still standing in poor black areas. They see "the next SoHo!"