ICP v. Ford Motors' Savings Bank Charter Application

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In early 1998, Ford Motor Company applied to the OTS to charter a savings bank, the proposed ANFC Bank. Ford’s application repeatedly states that the proposed thrift “will provide a variety of financial products and services” and that “[t]he FSB will engage in nationwide lending activities.” For Community Reinvestment Act (CRA) purposes, however, Ford wishes to limit assessment to the Detroit-Ann Arbor Metropolitan Statistical Area (“MSA”), and argues that it should receive a designation as a limited purpose bank,” thus exempting it from CRA's lending test.

Inner City Press/Community on the Move, and the Inner City Public Interest Law Center (together, "ICP") have opposed the proposal. First, Ford's attempt to limit its CRA assessment area to a single city, while it would be doing business nation- and even worldwide -- undermines the principle of the CRA, that banks have a duty to meet the credit needs of their entire communities. See, e.g., even the OTS' conditional approval of Travelers, FSB's charter application, where, after protest by ICP and the Delaware Community Reinvestment Action Council (DCRAC), Travelers took on a CRA duty everywhere it does business, in 44 states.

Ford on the other hand proposes that its CRA “obligations” would be limited to the Detroit-Ann Arbor MSA (Proposed CRA Plan at 2), and seeks to evade any lending test by claiming limited purpose bank status, despite its statements that it would offer a variety of products, including its publicly reported statements. See American Banker of March 18, 1998, at 2: “Ford believes that the federal savings bank charter grants a broad range of powers to engage in consumer lending activities and provides greater operating flexibility than alternative means.” In Ford’s application, however, there is not even any discussion of, much less commitment to, lending to LMI borrowers.

Significantly, Ford is already engaged in marketing motor vehicle loans over the Internet, through Ford Motor Credit and Primus. In fact, Ford currently solicits Internet users (and others) nation- and worldwide to set up “Ford Money Market Accounts,” over the Internet and through an “800” number (800-580-4778). The CRA issues raised by this proposal are nowhere near as limited (or non-existent) as Ford’s application presents them.

Ford Motor Credit is reported to have $119 billion in assets. It “sells an average of about $4 billion worth of asset-backed securities a year, according to John Burkhard, treasurer.” Automotive News, March 24, 1997. In 1997, it created a new conduit, Ford Credit Auto Receivables. Assets Sales Report, February 17, 1997. The OTS should inquire into Ford’s actual existing lending by reviewing this and other conduits, as ICP is undertaking to do. “Ford Motor Credit contributed $1.4 billion of Ford’s $3 billion in profits in 1996.” USA Today, January 20, 1998.

Ford engages in “subprime” (higher than normal interest rate) lending, through Fairlane Credit. USA Today, January 20, 1998, refers, after Fairlane Credit, to interest rates as high as 24%. Id. A detailed review of Ford’s existing credit operations is found in R. Meredith, Will Ford Become the New Repo Man? Financial Powerhouse Takes Aim at Bad Credit Risks, N.Y. Times, December 15, 1996, Sec. 3, Pg. 1. This article reports inter alia that:

Ford Motor Credit Company has become the biggest auto financing company in the world. In the third quarter [of 1996], Ford Credit earned $299 million, compared with a paltry $15 million for the company’s worldwide automotive operations... Now Ford has an ambitious plan... The lure is the $100 billion that people with flawed credit ratings borrow each year to buy new and used cars, and the interest rates of 18 percent and high that Ford will be able to charge on loans to its share of that market... Ford Credit’s new business is risky...

As Fairlane starts up, Ford Credit will begin referring the loan applicants it rejects to Fairlane... Fairlane will focus on the lower end of the scale... Mr. Heimlicher said, ‘We would be going into the C and D and what would be an E, if there were an E.’... Analysts say that to make money, Ford will have to show some ruthlessness in repossessing cars...

The auto lending practices of Ford Credit... are already under Federal scrutiny. Last year the Justice Department began investigating whether the companies discriminated against minority groups...

Emphasis added.

Beyond the obvious "banking and commerce" issues raised by Ford's proposal (see ICP's overview on the numerous thrift charter applications by insurance and other companies currently pending at the OTS, on ICP's CRA Hot Issues page), a number of other unanswered questions exist. If Ford through non-insured subsidiaries is already offering motor vehicle credit nationwide over the Internet, what is the benefit, to Ford and more importantly to the public and to communities, of chartering this thrift?

What relation would this thrift have to Ford’s questionable subprime lending, including through Fairlane?

Given the fair lending issues that have arisen in connection with banks’ “referrals” of some applicants to subprime (higher interest rate) affiliates, what fair lending (and ECOA compliance, including compliance with the requirement that all applicants as to whom adverse credit actions are taken be so informed) are in place within the Ford “family”?

What is Ford’s actual plan to offer “a variety of financial products and services,” as its Application says? Ford is asking for a thrift, which it proposes to have an extremely narrow CRA plan -- presumably inter alia to undercut the car lending of banks which acknowledge (and perform under) much broader CRA duties.

ICP's protest, raising these and other questions, was submitted to the OTS in April, 1998. As of February 12, 1999, the OTS had "suspended" Ford's application. Updates forthcoming when and if called for.

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