As they worked on thorny issues related to retirement and social security in a subcommittee last summer during the 2019 NEA Representative Assembly, a group of NEA members began to realize that a related issue needed attention to protect educators and the public: predatory lending.
The members of the NEA Resolutions Subcommittee on Retirement and Social Security initially began talking about the way reverse mortgages often trap retired persons in schemes that cost them their savings or their home. But according to subcommittee co-chair Chuck Ronco, a high school math teacher in Manassas, VA, they began to recognize that unfair lending practices in several forms have grown in their scope and sophistication, and are harming educators,
“It morphed into a conversation about predatory lending generally,” Ronco says. “Payday loans and reverse mortgages disproportionately screw over the elderly and the poor, and are a blight on communities of color, destroying credit and keeping people in an endless cycle of debt.”
He noted that other forms of crippling financial instruments are also now being marketed to young people with student loan debt. “It happened to me when I was in college. I spent almost as much in interest as was the loan amount in a matter of a few months.”
Tia Mills, then a member of the subcommittee and president of the Louisiana Association of Educators, says she has seen the effects of predatory lending practices in Baton Rouge, where she taught.
“I think educators are often victims,” she says. “With salaries what they are for teachers, it would be easy for someone to look for a way out of debt or a way to get money fast. Think about a single parent on a starting teacher’s salary – especially if they have a sick child who needs care, or if their car breaks down. Where do they turn?”
Odette Williamson, a staff attorney for the National Consumer Law Center (NCLC), which tracks and takes legal action against predatory practices, says the committee’s concern about reverse mortgages is well founded, especially as the country faces the economic dislocation brought on by the COVID-19 pandemic.
“As the rate of unemployment increases and businesses cut back on hours, people will be financially squeezed and all forms of predatory, high-cost credit will increase,” she says.
She explained that reverse mortgages involve a loan made to a homeowner based on the equity in their residence and are often marketed to the elderly to help them remain in their home if they have an unplanned expense such as a health issue or repair.
But not everyone can qualify, they may not offer as much money as borrowers expect, there are likely to be closing costs, and the interest rate may be substantially higher than the market rate. And if the borrower leaves the home or dies, the house must be sold to pay off the loan, though spouses have some right to delay the sale.
Meanwhile, payday and other high cost, small amount lending has been an issue for some time, and Lauren Saunders, associate director at NCLC, says those instruments are on the rise, are moving online and becoming more sophisticated and more carefully disguised as legitimate loans. She says more states are trying to regulate them, but the Trump administration has generally loosened restrictions.
The Federal Trade Commission, however, warns consumers that they “come at a very high price." The agency explains that with payday lending typically the borrower, needing cash, writes a check for an amount plus interest to a lender for cash, and the lender holds the check for some time, usually until payday. The fees are high and become unmanageable if the loan is rolled over when exorbitant interest rates also can kick in.
Mills notes that such lenders are common, and often in areas where residents need cash to make ends meet and are least able to pay the exorbitant costs – as are other predatory lending practices. More information about them should be made available to NEA members, she and Ronco argue and educators should speak up about them.
“Educators need to understand these practices to avoid them,” she says. “But, also, they should become advocates for regulation of these instruments, especially where they are hurting the most vulnerable among us.”