Faith-Based Investors Are at the Forefront of Lending Reforms

On Your Behalf—May 2009

This year, socially responsible investors challenged three major financial companies on credit card lending practices: Bank of America, Citigroup and JPMorgan Chase. Shareholder resolutions were filed at each institution seeking information on credit card marketing and collections and any practices that might be considered predatory.

Credit Card Lending Practices Under Increased Scrutiny

Credit card lending is a large part of the American economy. According to the Federal Reserve, more than 75% of all U.S. families have credit cards and the average credit card debt for those maintaining a balance is more than $7,000. Total credit card debt in the U.S. now exceeds $950 billion. The Government Accountability Office estimates that one-fifth of credit card holders pay interest rates higher than 20%.

With the collapse of several major lending institutions last fall due to excessive subprime lending, concerned investors understandably have taken a closer look at credit card lending practices. In many ways, some credit card lending practices resemble predatory lending practices: excessive fees and interest rates, frequent and unclear changes in loan terms and conditions and the encouragement of the irresponsible accumulation of debt. Predatory lending preys especially upon the more disadvantaged members of society, but it can affect almost everyone. The United Methodist Church has established a clear investment policy goal that discourages investment in financial institutions whose practices are identified as predatory or harmful. (Resolution 4071, Investment Ethics).

The General Board’s Record

Along with other faith-based and socially responsible investors, the General Board of Pension and Health Benefits (General Board) has been concerned with subprime lending for more than 15 years, having filed its first shareholder resolution on lending practices in 1993. Back then, the concern was that banks and lending institutions were not adequately funding community investment projects in disadvantaged neighborhoods. More recently, however, the General Board co-filed a shareholder resolution in 2006 requesting that Bank of America "develop higher standards for the securitization of subprime loans to preclude the securitization of loans involving predatory practices."

Bank of America officials met with shareholders and agreed to enhance, among other things, the review of lenders' broker approval and monitoring processes and to review significant settlements in order to improve lender scrutiny. Shareholders accordingly withdrew the resolution.

In September 2008, the General Board participated in conference calls with Washington Mutual and Wachovia to discuss both mortgage and credit card lending practices and foreclosure policies. At that time, both companies were on the brink of collapse due to large numbers of unsound subprime mortgages. Within a matter of months, Washington Mutual was bought by JPMorgan Chase and Wachovia was bought by Citigroup.

The Interfaith Center on Corporate Responsibility

The investors who have filed this year’s resolutions at Bank of America, Citigroup and JPMorgan Chase are members of the Interfaith Center on Corporate Responsibility (ICCR), a faith-based investor advocacy group working for greater responsibility among U.S. corporations. The General Board is a long-time ICCR member and partners with other ICCR members in the work of shareholder advocacy. ICCR’s credit card advocacy work has several important goals:

• to help cardholders during periods when new credit card policies are being implemented,
• to help cardholders take advantage of programs designed to help them manage and reduce debt,
• to adopt transparent methods for establishing credit-worthiness and minimum underwriting standards, and
• to help establish a universally approved definition of predatory lending and related policies.

The issue of credit card lending practices received national attention on April 23 when President Obama met with credit card industry representatives. The president stated his interest in credit card reform and voiced support of legislation that would protect credit cardholders from unfair rate increases and abusive fees and penalties, require greater transparency of terms and conditions and enhance monitoring and enforcement of credit card industry policies and protections.

Resolution Results

Investors have voted their proxies in favor of resolutions that seek to address credit card lending policies: 

The JPMorgan Chase resolution, sponsored by Mennonite Mutual Aid Praxis Mutual Funds, will be considered at JP Morgan Chase's May 19 annual meeting. JPMorgan Chase shareholders are encouraged to support the MMA Praxis Mutual Funds resolution.

The General Board will continue to lend its support to advocacy efforts to protect consumers and borrowers from unsound and predatory lending practices. 

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