The Center for

1. The Center for Community Capitalism Marketing and Public Policy Conference University of Utah, Salt Lake City, UT May 20-22, 2004 by Dr. Michael A. Stegman Center for Community Capitalism University of North Carolina at Chapel Hill

2. Consumer Research with Most ImpactPotential Impact: SWFA • Savings for Working Families Act introduced by Joe Lieberman (D-CT) and co-sponsored by Rick Santorum (R-PA); • Drafted initial legislation – contrary to consumer advocates, but ultimately became consensus vehicle for bringing Individual Development Accounts (IDAs), a form of matched savings accounts, to scale; • Rather than working through community-based nonprofits and appropriations process, uses federal tax system to provide tax credits to banks to provide matching funds; • Theory is that fed tax system should provide incentives to the poor to save, just as it does for the rich, but since poor can’t use credits directly, exchange credits that banks can use for matching funds for IDA programs; besides, appropriations more constrained than tax credits. • Introduced in 2000, passed by Senate, but not by House; now SWFA is contained in President Bush’s Faith-based Charitable Giving legislation called the CARE Act.

3. Litan Critique:Evidence of Policy Impact • “This study was the first to conclude that mortgage loans with abusive terms had declined, but its conclusion that subprime lending to the highest risk borrowers was not impaired—and indeed, even increased—directly conflicted with other notable studies that had concluded just the opposite, namely that subprime credit had dropped in the wake of the NC statute. • It is not surprising, therefore, that the UNC study had attracted significant attention in the media: from the time of its publication on June 25, until August, 2003, the study had been mentioned in over 300 press stories in a Nexis search. • Supporters of anti-predatory lending state statutes are pointing to the study as evidence that states can enact tougher restrictions than are imposed at the federal level without unintenionally impairing the availability of credit to subprime borrowers generally.”

4. Consumer Research with Most ImpactEvaluation of North Carolina Predatory Lending Law • NC first state to enact predatory lending law banning particular business practices that are common in subprime lending industry. Subprime lending focuses on provision of mortgage loans to borrowers with blemished credit; • Fundamental question is whether it is possible to regulate subprime lending in such a way as to rid the industry of abusive practices without throwing out the baby with the bathwater (reduce predatory lending without reducing flow of mortgage loans to qualified borrowers); • Until our paper was circulated, academic studies and industry consensus concluded that NC’s law had caused subprime lenders to exit the state and overall flow of subprime credit to be reduced, thereby punishing consumers; • Using a different dataset than others, and changing research question, we determined that: • While overall supply of subprime credit declined in NC relative to neighboring states, 90% of the fall-off was in abusive or predatory loans; also found no effects of the law on new purchase loans; entire fall-off was in refinances, which is wheremost abuses lie.

5. The Predatory Lending Data Debate • Until our paper, two sources of subprime data for predatory lending research: • HMDA, which contains no data on loan terms, or on borrowers other than race and location; also cannot separate subprime from prime loans for lenders designated as subprime lenders by HUD; • Proprietary database used by Michael Staten, Georgetown Credit Research Center, provided to him by an industry trade group, American Financial Services Association;

6. Debate Over Data • AFSA data set included 1.4 million loans, analyzing just 300,000 of them in four states that were made by nine lender members. • LP database included 3.3 million securitized loans in all 50 states made by more than 20 lenders. In terms of market share, the LP data included 42 percent of the entire subprime market in 1998, the starting point for our analysis, and 51 percent in 2002, the endpoint. • Compared to ours, AFSA database covers fewer lenders, ends before many of NC’s predatory lending law’s provisions took effect, and is unavailable to other researchers for independent analysis. • Given robustness of the LP data, we are mystified by criticism of our work based mostly on dataset we used, while policymakers and academics alike praise GCRC work without raising any question about the nature and composition of their data.

7. Most Effective Means of Reaching Policymakers with More Academic Consumer Research • Write applied scholarly papers for publication in appropriate journals and then write separate policy brief for wide distribution to policy makers. • What has worked for me is collaboration with Brookings Institution and their Policy Brief series: • Creating a Scorecard for the CRA Service Test – published in Georgetown Journal on Law and Poverty; led to presentation to OCC • Tax Policy as Housing Policy: The EITC’s Potential to Make Housing More affordable for Working Families—published in Housing Policy Debate; • Electronic Benefits Potential to Help the Poor; book, Savings and the Poor, published by Brookings Press; led to two invitations to meet with Senators, and with Senator Joe Lieberman writing forward and my writing legislation, Savings for Working Families Act.

8. How to Protect Against Research Biases • Premise of question implies that consumer research(ers) likely to be more biased than more traditional academic research(ers), which I dispute; • Best protection against undue bias is peer review and peer community; as much as I take pride in policy research, I assume that all of my work must withstand peer scrutiny—whether it be of a more advocacy nature or more straightforward applied social science research.

9. Speed vs. Scientific & defensible • Write applied scholarly papers for publication in appropriate journals and then write separate policy brief for wide distribution to policy makers. • What has worked for me is collaboration with Brookings Institution and their Policy Brief series: • Creating a Scorecard for the CRA Service Test – published in Georgetown Journal on Law and Poverty; led to presentation to OCC • Tax Policy as Housing Policy: The EITC’s Potential to Make Housing More affordable for Working Families—published in Housing Policy Debate; • Electronic Benefits Potential to Help the Poor; book, Savings and the Poor, published by Brookings Press; led to two invitations to meet with Senators, and with Senator Joe Lieberman writing forward and my writing legislation, Savings for Working Families Act.

10. Lie Enough Times: The Case of Payday Loans • Payday Loan Industry argues that it is not fair to annualize their fees using APR because most payday advances are for a month or less, many for 14 days or fewer; • Argument goes that payday loans are one of the few accessible sources of very short-term, occasional credit for hard-pressed consumers and are not intended to be a source of longer-term credit, so APR is not fair way of assessing the reasonableness of the industry’s charges. • You could take a taxi from Raleigh to Cary (about 2 mile ride) or you could take the same taxi from Raleigh to Seattle for exactly the same rate, but total cost would be ridiculous. It would be much cheaper to fly. It would be silly for a cash advance customer to take a single cash advance for an entire year. • NC fee structure $15% per $100, maximum term 31 days; • In NC, median payday loan fee of $36 for median loan of $244 in 2000 translates to a median APR of 419%. For a seven day loan, same parameters produce a 920% APR; • Truth: 18% of customers take out 13+ loans/yr accounting for 38% of total revenues; • Business model depends on rollovers & renewals; payday loans are a longer term source of credit than industry would have you believe.