Predatory lending

Predatory lending takes billions of dollars from low-income consumers/communities in the United States annually. Borrowers (consumers) lose an estimated $9.1 billion per year due to predatory mortgages; $3.4 billion from payday loans; and $3.5 billion in other lending abuses, such as overdraft loans, excessive credit card debt, and tax refund loans.

Predatory lending comes in different forms. One example: Money is lent to someone who wants to buy something they can't pay out of pocket for. Let's say, for a car. The lender talks them into getting a loan. But wiat, the borrower says, I have bad credit. No problem says the lender. If you just put the loan against your house, there will be no problem at all. And you, being a responsible person, you won't default on your loan. So everything will be fine and you'll have this car and it will be great. But what this means is that if they default on the loan, the institution lending the money gets the car buyer's HOUSE. The lender advertises that they will lend to ANYONE, regardless of credit history. What the buyer hears is "I can qualify for a loan, therefore i can have this car." What the lender is really saying is "We know you aren't responsible enough to pay us back on time, so we'll not only take back the car, but we'll end up with your house too. " So, basically, the lender expects that they won't be able to make the payments. When the payments aren't met, the borrower (usually a poor person) loses. Big time.

Another type of predatory lending: Those store front "Fast Cash" places. You can go there and get cash before you actually get your paycheck. You write a check to the place. They "hold" it until your check is supposed to be deposited. They give you cash for the amount of the check minus about a 15% "service fee". If someone did this one time and never again, it would be no big deal. But getting a paycheck early and forfeitting 15% of it to do so, to cover some unexpected expense, is going to come back and bite you later. Usually what happens is that people come back again and again, always losing that 15%.

A lot of predatory lending is done simply through advertising, payment plans and spin. Example: Rent-to-own. This is the most ridiculous, expensive way to acquie things like furniture. The ad says "You can have this beautiful couch and entertainment center for only $50 a month." People think "I can afford $75 a month." So they go for it, not realizing that A. they signed a contract to pay for that couch and entertainment center for FIVE YEARS and that equals 4, 500. and B. that if they bought it outright, it would only cost them 1,5oo. It seems clear and logical that if you are willing to have the same couch for at least five years, that if you simply saved $75 a month for a year and a half, you could buy the couch and own it for 1,500. But that instant gratification thing sets in and people make bad decisions.

While some people simply make bad decisions like paying too much for a couch...many people patronize predatory lenders out of desperation and don't have time or resources to understand the dangers of this kind of financial behavior. I don't understand how anyone can sleep at night when they are making a profit off of interfacing with people at their most vulnerable. But they do. When you see those places at strip malls, think about what a crappy business this is. The only thing that can really break the cycle of this type of lending is educating consumers on how much they get SCREWED in these situations and encouraging banks to offer loans to consumers who don't have great credit.

The Center for Responsible Lending is fighting to stop these financial abuses through legislative and policy advocacy, coalition-building, litigation, and industry research. Their web site can be found at www.responsiblelending.org

As an Action Item, support HR 1182 "The Prohibit Predatory Lending Act." Find more info about it here: http://capwiz.com/crl/issues/alert/?alertid=7308121