In a revealing example of the strength of local politicians and community groups, Fleet Bank is opening its purse to exorcise a ghost from its past.
When it closed in 1992, Fleet Bank's subprime lending arm, Fleet Finance, left behind more than 2,000 troublesome loans carrying abnormally high interest rates.
Despite protests from New Jersey activists that Fleet had not adequately notified borrowers that they were entitled to refinance into more affordable loans, Fleet's application for the purchase of Natwest was approved by the Federal Reserve, and the deal was completed in May.
The need to integrate Natwest's branches into its own network put extra pressure on Fleet to make peace. Following a show of support from former Natwest customers, Fleet signed an agreement Monday with New Jersey's Citizen Action Committee to commit energy and resources toward rectifying the problem.
In the past six months, unions and community groups that banked with Natwest threatened to pull millions of dollars out of branches now owned by Fleet.
For example, Hudson County Executive Robert C. Janiszewski, threatened to pull more than $30 million of employee pension funds out of Fleet/Natwest.
"Hudson County has had a long-standing relationship with Nat West Bank," read a letter that Mr. Janiszewski sent to Fleet in April. "As agents of the public trust, we must consider Fleets Bank's past practices. ... This review has raised questions as to whether our continued relationship is in the best interests of our community."
The troublesome loans in question were made through independent brokers to New Jersey borrowers with poor credit records before 1992. Many carry interest rates above 12% - more than 200 as high as 18%. Fleet Finance has foreclosure proceedings pending on more than 900 of the loans.
A spokesman from Fleet says that it tried several times to solicit these borrowers to refinance their loans.
"The group of borrowers that Citizens Action said were in trouble never materialized," he said. Citizens Actions maintains that Fleet's outreach efforts were not vigorous enough.
Early this year the company included a provision on the bottom of borrowers' monthly statements asking borrowers to contact their lender if they felt the terms of their loan were unfair.
Under the new agreement, the statement has been revised to show borrowers what the terms of their refinanced loan could be.
In addition, Fleet pledged to set up a toll-free number for borrowers who think they are holding loans with exorbitant interest rates. That number is not yet operative, but a Citizens Action toll-free line mentioned in local media reports has received hundreds of phone calls since Monday, said a Citizens Action spokeswoman.
The bank's newest commitment includes provisions for a 3% down payment grant to enable these borrowers to purchase a new home. In addition, Fleet will be offering cash back to some borrowers who paid off their high-rate loans.
Fleet cannot estimate what the reparations will cost, a spokesman said, because it does not know how many borrowers will come forward.
"We don't expect it to be enormously expensive," he said, although some say the agreement will cost Fleet millions.
Citizens Action estimates that there are thousands of the high-interest loans outstanding.
Associates Financial Corp., which now owns all of Fleet Finance's former branch offices, as well as most of its portfolio, says it will not be involved with the loans in question.
