Setting the Record Straight:

Self-Help Lives Up to High Standards

April 21, 2008

As state after state enacts laws to curb high-interest rate “payday loans”, the payday lending
industry is turning its lobbying and public relations power against groups that expose the
predatory nature of their product. One of their targets is Self-Help and its policy arm the
Center for Responsible Lending (CRL), which advocate for an interest rate cap of 36 percent
for all consumer loans. Payday lenders complain this rate cap will put them out of business,
and have indeed left places like Washington, D.C., North Carolina, Georgia and Oregon since
interest rate caps have been enforced.

In their newest attempt to halt state reforms, payday lenders have created a fake “grassroots”
group called the Consumers Rights League (CR League) to attack Self-Help and CRL by
spreading misinformation about the groups’ work. CR League has falsely characterized
Self-Help’s community development lending and public policy work as self-serving, but
the facts prove otherwise.

Self-Help’s lending record, business practices, financial strength, and advocacy efforts have
been strong for over 20 years, and focused on its mission of helping low-income and
underserved individuals and families create wealth. Since 1980 Self-Help has helped over
60,000 borrowers buy homes, build small
businesses, and strengthen communities in “The reason all this is important is that
North Carolina and around the country. there’s a war of words on… Subprime and
Self-Help was recognized as one of twelve payday lenders in particular are fighting hard
high-impact U.S. nonprofits in the book to fend off long-overdue reforms aimed at
Forces for Good, along with other shutting down their three-card-Monte
organizations such as Habitat for Humanity, business practices. Eakes and his group
The Heritage Foundation, Teach for exposed abuses in subprime and other
America, National Council of La Raza, and lending—mostly by doing the research and
YouthBuild USA.1 reporting, it should be added, that put
business-news organizations…to shame.
Background
CR League was launched in early 2008 and, Now the Swift Boat-style campaigns
according to the Columbia Journalism
against borrowers and their advocates
Review, “appears to exist for no other
have begun...”
purpose than to attack [Self-Help CEO
Martin] Eakes and promote the payday Columbia Journalism Review
lending industry.”2 The organizations “Forbes’ Failed Probe” (March 12, 2008)
http://www.cjr.org/the_audit/forbess_contortions.php?
behind the CR League—most notably page=all
FreedomWorks—appear to have many ties
with the payday lending industry.3

This is not the first time payday lenders have tried to discredit Self-Help, which has
consistently opposed their 400% annual percentage rate loan product that traps consumers in
high-cost debt. In 2005 a Washington think-tank, the Capital Research Center, worked with
the payday lending trade association on a report attacking Self-Help’s lending record and
advocacy efforts to halt payday lending.4 The report included a false charge—publicly

1
refuted by both federal and state credit union regulators—that Self-Help Credit Union had
made insider loans to executives.5

CR League has recycled many of these discredited claims against Self-Help in its “Predatory
Charity” report, published in February 2008. Many of the same false allegations also
appeared in an article published at the same time by Forbes magazine.6 However, the
Columbia Journalism Review analyzed the Forbes article and concluded that “the piece
crosses the line from tough to unfair by trying to cast benign or irrelevant facts as somehow
sinister.”7 The CR League report demonstrates the same flaw.

CR League Gets It Wrong

They say… But the Truth is...

• Self-Help attacks other lenders for
using predatory practices that it
employs.
• As a community development lender,
Self-Help offers responsible loan products
at fair rates. It seeks to live up to the
standards pushed for in its advocacy
work.

• Self-Help has amassed financial • Self-Help has built its financial soundness
resources for its own benefit. in order to continue its community
development work.

• Self-Help’s advocacy work through • The Center for Responsible Lending’s

CRL is based on flawed research. advocacy work is based on rigorous data-
driven research and Self-Help’s 24 years
of lending experience.

• Self-Help has different financial
results than other credit unions, so
it must be doing something wrong.
• Self-Help Credit Union looks different than
its “peer” credit unions because its
primary focus is providing home-
ownership loans to low-income and
under-served families.

Fact #1: As a community development lender, Self-Help offers responsible loan products
at fair rates. It seeks to live up to the standards pushed for in its advocacy work.

Self-Help Credit Union has grown in the past several years as a result of strong demand for
small-business loans and homes loans in North Carolina, primarily in disadvantaged
communities that are underserved by mainstream lenders.

• Mortgage Lending: Virtually all Self-Help mortgage loans are fixed-rate loans made
to borrowers who do not fit conventional lending guidelines. These mortgages are
priced substantially lower than other subprime mortgage loans, carrying a 1%
origination fee and no private mortgage insurance. Self-Help has been a subprime
mortgage lender for 24 years, but unlike many subprime lenders it does not charge
prepayment penalties, and has maintained the strong underwriting guidelines that
others abandoned (e.g. documenting income and the borrower’s ability to repay their
loan). Additionally, Self-Help gives borrowers the lowest rate they qualify for; it

2
 does not permit its loan officers to increase the rate in exchange for a kickback (yield-
spread premium). In fact, if a loan applicant can qualify for a lower-cost conventional
mortgage loan, Self-Help tells them so and refers them to local banks.

• Overdraft Loans: Self-Help does not provide fee-based overdraft loans, but instead
offers customers an overdraft line of credit that is capped at a 16% annual percentage
rate of interest. Self-Help has been publicly and equally critical of credit union fee-
based overdraft loan programs as it has been of banks’ programs.8

• Payday Lending: Self-Help has never Self-Help Lending Record

offered payday loans and does not Since 1980
benefit from CRL’s advocacy work in
Home Financing: $4.8 billion, 53,459
this area. It opposes 400% APR payday homeowners
loans because they do significant
financial harm, especially to low-income Small Business Lending: $336 million,
9 2,848 loans, 22,115 jobs created or
families. Since payday lending has been maintained
outlawed in North Carolina, the bulk of
small consumer loans are made by Community Facilities Lending: $179
million, 733 loans, 27,509 childcare spaces,
financial institutions and consumer 22,683 public charter school spaces, 8,128
finance companies already doing jobs created or maintained
business in the state.10 Contrary to
payday lending industry charges, Self- Real Estate Development: $85 million
Help cannot profit from the shutdown of invested, 103 homes and 16 commercial
payday lending in Georgia, Washington, properties built or renovated
D.C., Arkansas, New Hampshire,
Oregon, and West Virginia, and from efforts underway in Virginia, Ohio, and
Colorado to impose rate caps. Not only does Self-Help not offer payday loans, it does
not make consumer loans in any of those states.

Fact #2: Self-Help has built its financial soundness in order to continue its community
development work.

• Self-Help has strict policies that prevent insider loans or other self-gain by
executives. Self-Help does not allow ANY senior official or board member (or their
family members) to borrow AT ALL from Self-Help. It is the only retail financial
institution we know of that does not allow its senior officials to even get personal
credit cards. CR League has resurrected the false allegation of insider loans—even
though they know it was refuted by state and federal regulators11— in an attempt
to damage Self-Help’s reputation.

In addition, all Self-Help executives are subject to a company-wide salary cap:

currently $69,000 annually for North Carolina.12 Self-Help’s management works
there for many reasons, but getting rich isn’t one of them.

• Self-Help uses grants from government and private funders to support lending —
at reasonable rates—to higher-risk borrowers and in communities that are
underserved by conventional lenders. For example, grants help support Self-Help’s
loans to childcare facilities in North Carolina, which carry only a 5 percent interest
rate on average. Similarly, Self-Help makes loans to public charter schools that are

3
 often at below-market rates and with less-than-full collateral. At the same time, Self-
Help provides many hours of (free) technical assistance to small business owners, and
makes small business loans for as little at $2,000; both are things that conventional
lenders cannot afford to do. Grant funds also provide downpayment assistance for
families to become homeowners without putting substantial money down, and support
Self-Help’s work to revitalize neighborhoods by fixing up dilapidated houses and
reselling them to first-time homebuyers.

• Self-Help only forecloses on loans as a last resort. Its low loss rate (well under
1% per year throughout a 24-year lending history) shows this is a rare
occurrence. Self-Help is a lender and not a government give-away program. Self-
Help tells borrowers very clearly up front that it will collect and foreclose if they do
not repay their loans; otherwise it would not be able to help other borrowers in the
future. With 60,000 Self-Help loans financed by Self-Help Credit Union and its
nonprofit affiliate, Self-Help Ventures Fund, to higher-risk borrowers, it is
inevitable—although still unfortunate—that some foreclosures would occur. Self-Help
works closely with its home and commercial borrowers so that foreclosure is an
absolute last resort.

• Self-Help’s commercial real estate investments support its work and help other
small businesses and nonprofits. When finding office space for staff, Self-Help has
found it often makes economic sense to own rather than rent—it's a better use of
limited resources and protects against rising rents—and has followed this practice in
North Carolina for the last 20 years. Many nonprofits own their buildings, including
nonprofit industry associations such as the Mortgage Bankers Association.13 Further,
Self-Help makes space in its buildings available at attractive rents to other nonprofits
and small businesses in North Carolina and D.C.

Fact #3: The Center for Responsible Lending’s advocacy work is based on rigorous
data-driven research and Self-Help’s 24-years of lending experience.

• CRL’s research is well-respected. It has published an array of reports on mortgage

lending, payday lending, and abusive overdraft loans that quantify the cost of
predatory lending to communities and families.14 Among others, the Federal Reserve
Board has praised CRL's research, saying "CRL has produced ground-breaking
research on the subprime mortgage market and has been a key advocate for state and
federal protections that reasonably balance consumer interests with the goal of
increasing sustainable homeownership with affordable loans."15

• CRL‘s research is based on real market experience and data, strong statistical
research methods, and peer-review. CRL analyzes large databases of financial
transactions to identify issues and market trends. These include databases of millions
of mortgage loans, house price forecasts in every U.S. market, data on tens of
thousands of payday loans and over three million checking account transactions.
These datasets, developed by federal and state regulators and commercial firms like
Forrester Research, McDash Analytics, and Moody’s Economy.com, are publicly
available, in contrast to proprietary datasets used by some industry-sponsored
researchers. CRL’s research team cumulatively has decades of experience in the areas
of financial services, housing, consulting, law, asset building, and statistical analysis.

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 Its research methods are rigorous and fully-documented in studies, and it adopts
conservative assumptions when compensating for incomplete data or adjusting for
other market conditions. CRL’s research has been published in peer-reviewed
journals, including Housing Policy Debate and the Journal of Economics and
Business,16 and its Research Advisory Council includes respected academics and
leaders from major universities and research institutes.17

Attacking CRL’s Research:

What CR League “Forgot” to Mention

On CRL’s “Losing Ground” report: “While subprime mortgages have faced significant problems, they
have fallen predictably short of CRL’s dire predictions.”

Forgot to mention: CRL projected 1.1 million new foreclosures, and a 19% foreclosure rate.
Moody’s Economy.com and others now estimate 2.0-2.5 million foreclosures and Fitch Ratings
predicts a foreclosure rate of 43%.

On CRL’s “Race Matters” report: “[CRL’s report] contains severe weaknesses and presents
conclusions that are overstated at best and misleading at worst” (quoting Prof. Thomas Lehman,
Wesleyan University).

Forgot to mention: Prof. Lehman has taken money from the payday lending industry. (“This
Opinion Brought to You By” Business Week, Jan. 30, 2006).

On CRL’s “Financial Quicksand” report: “[a] Federal Reserve report…concluded CRL’s research was
both flawed and costly to low-income consumers.”

Forgot to mention: The front page of this working paper by a Federal Reserve staff economist
states “the views expressed in this paper are those of the authors and not necessarily reflective of
views at the Federal Reserve.”

• Self-Help would be subject to the same regulations proposed by CRL. As stated

previously, Self-Help already follows the lending standards advocated by CRL,
including offering responsible, affordable subprime mortgage loans and limited
overdraft lines of credit. Falsely, CR League has charged that CRL pushed to exempt
credit unions from the court-supervised modification bills that are being considered in
Congress. NOT TRUE. Because many credit unions didn’t make many subprime or
“nontraditional” mortgage loans that were the subject of the bill, the impact of this
legislation on credit unions may be minimal. However, the majority of Self-Help
Credit Union’s home loans meet the bill’s definition of subprime, and hence would be
covered by the bankruptcy bill.

• CRL advocates for changing the bankruptcy code because it will help an
estimated 600,000 struggling families keep their homes. CR League recently
charged—falsely—that CRL is supporting public policy reforms for financial gain.
This charge is based on a grant CRL received from the investment management firm
Paulson & Co., Inc. However, NONE of the grant funds have been or will be used by
CRL for lobbying. Over the years, Self-Help and CRL have received grant support
from numerous banks and mortgage companies, some of whom oppose the proposed
bankruptcy reform bill. CR League would be hard-pressed to find any Self-Help
funder who believes it has been able to influence CRL policy goals.

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 More specifically, the grant from Paulson & Co. will provide funding and training to
organizations that help homeowners negotiate alternatives to foreclosure. The majority
of the funds will be grants to support direct legal assistance to homeowners across the
country to fight foreclosure, predatory lenders and abusive loan servicers. It will do
this primarily by providing money directly to nonprofit groups—in fact, over $6
million in specific awards were announced in early March 2008.18 The remaining
funds will be allocated to similar efforts over the next two years. With 43% of recent
subprime loans projected to be lost to foreclosure absent policy intervention,19
providing legal assistance to borrowers facing foreclosure and changing the
bankruptcy code so that judges can restructure loans to make them affordable as a last
alternative to foreclosure20 are both urgently needed to help struggling families keep
their homes. Self-Help worked to stop foreclosure and to reform the bankruptcy code
before it had any association with Paulson & Co.; at the same time Self-Help
appreciates the latter’s support of legal efforts to prevent foreclosure and save an
estimated 5,000 or more homes as a result.

Fact #4: Self-Help Credit Union looks different than its “peer” credit unions because its
primary focus is providing home-ownership loans to low-income and under-served
families. 21

• For over 20 years, Self-Help’s loan delinquency rates have been higher than its
credit union peers because it makes home loans to low-income borrowers with
few cash savings. These borrowers fall behind on their loans more frequently than
borrowers overall when faced with an income disruption caused by divorce, illness or
temporary job loss, but they remain committed to keeping their homes. In addition,
Self-Help works very closely with borrowers to help them through these difficulties.
As a result, very few Self-Help loans end in borrowers defaulting and losing their
homes through foreclosure, a result reflected in Self-Help Credit Union’s low loss
rates of 0.26% per year over the past 5 years.

• Self-Help’s members have higher loan balances because its loans are
predominantly home mortgages, rather than auto loans and other small loans
offered by most credit unions.

• Self-Help has a higher return on assets than its peers because of lower expenses
and a higher portfolio concentration of loans versus investments. Self-Help
expenses are lower because it has fewer retail branches, fewer staff members, and its
executives' salaries are significantly lower than its peers.22 In addition, Self-Help
deploys a higher percentage of its assets into loans, which earn more than
investments.

Conclusion
CR League’s recent “swift boat” attack on Self-Help is yet another effort by the payday
lending industry to halt Self-Help’s advocacy against predatory 400% APR loans. As in
2005, this attack is based on false claims and flawed facts; not unlike payday lenders’ calling
their product a “benefit” to consumers.

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1
Leslie Crutchfield and Heather McLeod Grant. Forces for Good: The Six Practices of High-Impact Nonprofits.
p.2 (2008)
2
Forbes’ Failed Probe. Columbia Journalism Review (March 12, 2008). Available at
http://www.cjr.org/the_audit/forbess_contortions.php?page=all
3
Among other things, Former House Majority Leader Dick Armey, chairman of FreedomWorks, was a top
recipient of payday industry political donations when he was in Congress. Some who made generous
donations were top executives of payday lender Rent-A-Center Inc. In 2004, the year after he joined
FreedomWorks, Armey was named to the board of Rent-A-Center Inc., where he served as a director until
September, 2006. FreedomWorks president Matt Kibbe is husband of CR League head Terry Kibbe and, over
the last twelve months, he has lobbied Virginia legislators to keep payday lending legal in the state. CR
League also shares a mailing address with FreedomWorks.
4
Fight Between North Carolina Credit Union and Payday Lenders Gets Uglier, Aims For A Bigger Audience.
Credit Union Times (November 2005). Available at http://www.cutimes.com/article.php?article=7743
5
Frank Norton. Report criticizes credit union. The News & Observer (November 4, 2005). Also, Badge of
Honor (editorial). The News & Observer (November 8, 2005).
6
Stephane Fitch and Matthew Woolsey. Subprime's Mr. Clean. Forbes (March 10, 2008). Available at
http://www.forbes.com/forbes/2008/0310/042b.html
7
Columbia Journalism Review, at note 2.
8
Eric Halperin and Peter Smith, Out of Balance: Consumers pay $17.5 billion per year Center for Responsible
Lending (July 2007). Available at http://www.responsiblelending.org/pdfs/out-of-balance-report-7-10-
final.pdf
9
Uriah King, Leslie Parrish, Ozlem Tanik. Financial Quicksand: Payday Lending Sinks Borrowers In Debt
Center for Responsible Lending (November 2006). Available at
http://www.responsiblelending.org/issues/payday/reports/page.jsp?itemID=31101660
10
North Carolina Consumers After Payday Lending: Attitudes and Experiences with Credit Options. University
of North Carolina Center for Community Capital. (November 2007). Available at
http://www.ccc.unc.edu/documents/NC_After_Payday.pdf
11
Credit Union Times at note 4 and News and Observer at note 5.
12
Self-Help staff in DC and California also receive “locality pay adjustments” to reflect the difference in living
expenses between these locations and North Carolina.
13
Jeffrey Birnbaum. Housing Crisis Hits Its Own: Mortgage Bankers Group Faced With Tougher Terms.
Washington Post (April 6, 2008)
14
CRL research reports can be found at http://www.responsiblelending.org/research/
15
Board of Governors of the Federal Reserve System Press Release January 9, 2008. Available at
http://www.federalreserve.gov/newsevents/press/other/20080109a.htm
16
John Farris and Christopher A. Richardson The Geography of Subprime Mortgage Prepayment Penalty
Patterns Housing Policy Debate Vol 15 Issue 3. (2004). Wei Li and Keith S. Ernst., Do State Predatory
Lending Laws Work? A Panel Analysis of Market Reforms. Housing Policy Debate Vol 18, Issue 2 (2006).
Debbie Gruenstein Bocian, Keith S. Ernst and Wei Li Race, Ethnicity and Subprime Home Loan Pricing.
Journal of Economics and Business Vol. 60, Issue 1-2 (2008).
17
CRL Research Advisory Council member names and biographies available at
http://www.responsiblelending.org/about/rac.html
18
Helping Americans Keep Their Homes: Institute Announces $6.5 million in Legal-Aid Grants to Help Families
Caught in the Foreclosure Crisis. Institute for Foreclosure Legal Assistance press release (March 6, 2008)
available at http://www.responsiblelending.org/press/releases/institute-announces-6-5-million-in-legal-aid-
grants.html
19
Fitch Ratings estimates total losses of 25.8% of original balance in Q4 2006 loans placed in MBS they
rated, and that loss severity will be at 60%, which means that 43% of the loans are projected to be lost to
foreclosure (25.8/60). Glenn Costello, Update on U.S. RMBS: Performance, Expectations, Criteria, Fitch
Ratings, p. 17-18 (not dated, distributed week of February 25, 2008). According to Michael Bykhovsky,
president of Applied Analytics, an estimated 40% of outstanding subprime mortgage loans could go into
default over the next three years (press briefing at the Mortgage Bankers Association's National Mortgage
Servicing Conference, February 27, 2008).
20
Other supporters of this change include Jack Kemp, former Republican HUD Secretary; Lawrence Summers,
former Democratic Treasury Secretary; Lewis Ranieri, who pioneered securitization; prominent economists
such as Mark Zandi, chief economist of Moody’s Economy.com; Robert Shiller, Professor of Economics and
Finance at Yale University, and Karl Case, Professor of Economics at Wellesley College (Professors Case and
Shiller are principals in creating the Standard & Poor’s Case-Shiller® Home Price Index). The New York

7
 Times, USA Today and other editorial boards support it as well. See
http://www.responsiblelending.org/issues/mortgage/prevent-600000-foreclosures.html.
21
Self-Help “peer” credit unions have $100-$500 million in assets. Financial statements available at National
Credit Union Administration website http://www.ncua.gov/data/foia/foia.html.
22
Source: HR Value Group, LLC, 2006 Southeastern Region Credit Union Compensation and Benefits Survey
(435 credit unions in the Southeast replied to the survey). Selected representative salaries appear below. This
survey was conducted approximately two years ago; Self-Help’s salary cap in 2006 was $63,000.
CEO: 2006 average salary for credit unions in the Southeast with $200-500mm in assets: $151,426
($146,700 median)
COO (or equivalent): 2006 average salary for credit unions in the Southeast with $200-500mm in
assets: $97,671 ($98,455 median)
CFO (or equivalent): 2006 average salary for credit unions in the Southeast with $200-500mm in
assets: $78,248 ($75,541 median)