the 2000s. In 2006, she moved to North Carolina to take a job as a senior policy counsel at the Center for Responsible Lending.
Keest was running a regional legal aid office in Des Moines in 1984 when she picked up her first predatory mortgage case. This was early in what Keest dubs “wave one” of the subprime debacle, when some of capitalism’s scrappier practitioners took advantage of a seemingly sensible set of policy changes. For years many states had a cap—typically around 10 percent—limiting the interest rates banks could charge on a mortgage. Those went by the wayside when the country experienced double-digit inflation through much of the 1970s and the credit markets for people looking to buy a home froze. States were starting to lift those caps and if some locales were foresighted enough to keep in place a floating ceiling on the amount a mortgage lender could charge, those would be wiped out when the federal government, in 1980, passed a law barring the states from imposing limits on the rates a lender could charge on a real estate transaction. Two years later, during President Ronald Reagan’s tenure, the federal government would go further, giving lenders the latitude to sell more creative home loans, from balloon mortgages (in which most principal payments are deferred to the end of the loan period) to adjustable rate mortgages, or ARMs, which can see the interest rates a borrower pays fluctuate dramatically over the life of a loan.
The big consumer finance companies such as Household and Beneficial were among the first to jump on this first wave. Traditionally consumer finance firms had specialized in small, high-interest loans in the neighborhood of $500 or $1,500 to customers needing financing to replace a broken refrigerator or to buy a bedroom set for the kids. But this newly deregulated environment meant they could sell larger loans to these same customers at similar rates. “Once these guys moved up the food chain,” Keest said of the consumer finance companies, “we started seeing countless examples of people who purchased homes in the prime market”—when home loans were still regulated—“only to lose them in the subprime market.” People spoke of a new era of “risk-based pricing,” where interest rates were set based on the risk profile of a borrower, but Keest saw it as “opportunistic pricing”: charge as much as you can despite the security of a person’s home as collateral.
“Who cared if companies were screwing poor people?” Keest asked. “It was the eighties.”
With this first wave a new set of terms entered the lenders’ vocabulary. A lender was said to be “packing” a loan when a salesperson had been able to load it with points and fees and expensive baubles like the credit insurance Household sold Tommy Myers. “Flipping” was a broker’s ability to convince customers to refinance again and again—packing each new loan with additional points and broker fees. Another common gambit was to convince borrowers to consolidate their bills into a single home loan—often not realizing that in exchange for the convenience of a single monthly bill they had suddenly placed at risk their most valuable possession, their home. All of these practices added up to “equity stripping,” the fiendish art of siphoning off the equity people have built up in their homes.
Keest spotted other forms of subprime lending creeping into the culture by the end of the 1980s. Deregulation was one cause but broader economics were a factor as well. The country grew more prosperous during the 1980s and ’90s but the relative wages of the working class fell, expanding the pool of would-be borrowers desperate for the quick cash that could tide them over between paychecks. It was almost inevitable that a raft of clever entrepreneurs would try to fill the gap—for a price.
Keest struggled to keep up with all the new developments in a bimonthly newsletter she wrote and edited for the Consumer Law Center. Keest, a short, slim woman with a long narrow face framed by a pageboy hairdo, remembers the first time she learned about what she dubbed “postdated check loans.” It was 1988 and a reporter in Kansas City called to ask her about the legality of a local company making short-term loans to customers who put up their next paycheck as collateral. To Keest, this was a revival of the “salary buyers” who popped up around the country in the second half of the nineteenth century—the so-called “five for six boys,” since people would borrow $5 on a Monday and pay $6 on Friday. The country had outlawed the salary buyers early in the twentieth century but now in state after state, legislatures were providing carve-outs in their usury laws to legalize this new crop of lenders. “Tennessee was the first place to take it big but then plenty of states followed,” Keest said.
There were always novel credit schemes to keep Keest busy. One of the more creative was the “auto title loan,” which she first heard about in the early 1990s. These were similar to loans made by the country’s pawnbrokers except that a lender would take possession of the title as collateral rather than the vehicle itself, allowing people to continue driving while a loan was outstanding. Even businesses that had been around since well before the 1980s, such as rent-to-own and check cashing, provided plenty of fodder for her newsletter as these industries scored legislative victories that fostered further expansion. She felt that she was fighting a losing battle. The gap between the well-off and the less fortunate was widening and a slew of high-interest, high-fee products promised to exacerbate the disparity.
“The first time the issue of subprime had gotten anywhere near the kind of attention it deserved was with Fleet,” she said. “Until Fleet, we had never gotten any traction with our issues.”
Keest remembers riding the train with Bruce Marks and arguing over his use of the phrase “predatory lender.” She was worried that it was too inflammatory, that such a loaded term might turn people off to their cause. She also wondered about the focus on Fleet when she knew they were no worse than the others, only larger and more successful. Years later, she laughed at how little she understood the workings of the media then. It had to be Fleet, precisely because it was so big. While its size gave it strength, it also made it vulnerable to public pressure and outrage.
In the months following the CBS broadcast, both the U.S. House and Senate held committee hearings to probe Fleet Finance’s lending practices. Bruce Marks did his part to ensure that the Senate Banking Committee hearing was especially memorable. “Ride an all-expense paid chartered bus to Washington,” read the flyers Marks’s group passed around poor neighborhoods in Boston, Atlanta, and Augusta, Georgia, in the days leading up to the hearing. Roy Barnes picked up most of the tab for those willing to travel north from Atlanta (meals included) and Marks’s organization footed the rest of the bill. So many people took them up on their offer—press accounts put their numbers at between three hundred and four hundred while Marks claimed a crowd in excess of five hundred— that the hearings had to be moved to a larger room. The demonstrators, dressed in their bright yellow “loan shark” T-shirts, broke into chants and song. “It was like a gospel revival meeting,” Marks said in interviews afterward. Defending his bank before the committee, Fleet president John Hamill said that the average annual interest rate on a Fleet Finance loan was 15.9 percent and not 20 percent or more as some were claiming. “I’ve got to tell you,” committee chairman Donald Riegle, Jr., told Hamill, “that 15.9 percent…bothers me and it ought to bother you…. It’s very troubling to me and frankly I think it’s hurting the country.”
The fight lasted several more months. Fleet thought it might out-smart Marks by having a lawyer issue a subpoena requiring him to testify in Boston on the day of its next annual shareholders’ meeting in Providence. They wanted it to be a celebratory day as the bank was about to announce a 113 percent jump in its first-quarter profits in 1993. “We just assumed even an ego that size couldn’t be in two places at one time,” a bank spokesman told the
The final straw came in the fall of 1993, when Marks learned that Fleet’s Terrence Murray had been invited to speak at a breakfast for business leaders sponsored by the Harvard Business School. Marks had about thirty-five people planted around the room that morning. “We got the names of Harvard Business alum and started registering in their names,” he said. “We just took their names. We didn’t ask permission.” Marks sidled up to Murray as people were gathering and told him matter-of-factly that they would make sure he wouldn’t be speaking that morning. Murray was a working-class kid from Providence who had attended Harvard on scholarship. “In front of everyone, Murray got up there and said he was going to resolve the troubles he was having with Fleet Finance,” Marks said. A few days later, the two sat down for the first of a trio of long talks, each lasting three or four hours. “I get a call from Bruce saying he’s meeting with Murray, what would it take to settle my suit,” Brennan said. When Marks phoned him back a few hours later to tell him that Fleet had capitulated and it was a done deal, Brennan wished he had asked for a larger number.
Fleet paid $6 million to settle the separate class-action suit that Howard Rothbloom and Roy Barnes had filed on behalf of Lillie Mae Starr and twenty thousand other Georgians who had received home loans through Fleet Finance. That was very good news for Starr and the other named plaintiffs and also Rothbloom and Barnes, who (along with two other lawyers) split $2 million in fees and another $150,000 in expenses for their efforts. Jack Long in Augusta fared even better, negotiating a $16 million settlement for himself and his clients. Fleet pledged another $115 million to settle claims filed by the attorney general, a portion of which would provide refunds and other relief to those who had done business with Fleet Finance in Georgia. Fleet set aside $800 million for programs aimed at
