Are Lending Institutions Irresponsible?

[WarrenJ]

I bought my current residence in December of '03. I didn't even move in 'till January of '04. But, upon arrival, I found my mailbox filled with ominous looking communiques from impressive sounding Law Offices.

Former tenants Charise and Claudia, it seems, had disappointed a number of creditors (understatement). The mail was intense. I dutifully responded to these Law Offices that the folk they were looking for were no longer to be found at my address. No matter; the snail mail deluge continued. After a year I felt I'd done my duty in returning the mail and then felt innocent about opening these letters for my own info/enjoyment. WOW! Did they owe some monies!

(As an aside, I've often wondered whether Charise and Claudia were not one and the same person. )

To digress even further for a moment, we are now suffering a drastic downturn in our markets that is, in part, attributed to "loose" lending practices. Specifically: sub prime loans. Happily, I ducked that bullet in my investments. Many, however, were hurt; badly. And the future will continue to hurt, at least for a while. At the very least.

Okay, here's what has me ROTFLing: Saturday's mail offered Claudia a car loan that was specifically tailored to assist in repairing her credit record. It offered her a CLEAN START program "working with federally secured banks and lending institutions to enable you to purchase a vehicle of your choice regardless of your past credit history." Lawyers are looking for Claudia for having skipped on two previous car loans.

Charise, on the other hand, got another offer. A MAJOR credit card issuer asked why they'd lost contact with her and begged to reestablish contact. Their offer was very attractive, starting with 0% interest for an extended period and a generous limit . Lawyers are looking for Charise for having skipped on multiple credit cards.

So here's what's got me ROTF crying: Good credit risks (that would likely be thee and me) pay extraordinary interest rates, close to usury, while the lenders exclaim that they must charge such rates to make up for their losses on deadbeats.

Now my dog, if I had one, could likely get a credit card!

EXACTLY WHO is responsible for deadbeat losses when credit issuers follow practices such as this?!?

Your thoughts?

[/rant]

Warren

[Cadillac Jim]

I would surmise that, since all banks and other businesses perform actions to make money, and that the only money to be made on defaults is repossessions and attachments subsequent to court judgments, that what you are seeing is predatory lending practices. Forward that junk to the FTC.

[Marika]

Actually, I think it's the government who sets the lending criteria. They loan the money to the banks who in turn loan the money to us. Everyone makes money right down the line.

Rich folk usually get very good rates on loans, credit cards etc. It's the poor who pay very high rates. The bank keeps their cut and the rest works it way back up the chain until it finally goes back to the treasury department of the government.

It was once said that income tax could be totally eliminated because of all the money the government is making on every conceivable type of loan that's floating around out there. That's how much money the government makes loaning money through banks

If the government wants to fix the problem of "bad loans", they need to change the rules and only they can change the rules. What they did instead was make it harder for people to get out of their loans through bankruptcy. They have people stuck between a rock and hard place. Under the new bankruptcy laws you can no longer negotiate your mortgage payments. Even if all your other debts get discharged, you still have that mortgage to pay. The government knows what they're doing when it comes to making money from money.

[Marika]

Found this Opinion Editorial in the New York Times this morning.

July 31, 2007

Editorial

Credit Card Buyer Beware

The federal agencies that are supposed to regulate the banking and credit card industries have failed utterly to keep pace with deceptive and unfair practices that have become shamefully standard in the business. As a consequence many hard-working Americans who pay their bills are mired in debt — and in danger of losing whatever savings they have, and perhaps their homes. Congress, which sat on its hands while the problem got worse and worse, needs to rein in this sometimes predatory industry.

The scope of the problem was laid out in Congressional hearings this spring held by Senator Carl Levin, the Democrat from Michigan. According to testimony, one witness exceeded his charge card’s $3,000 limit by $200 — triggering what eventually amounted to $7,500 in penalties and interest. After paying an average of $1,000 a year for six years, the man still owed $4,400.

That experience has become all too common as the credit card industry has stealthily adopted methods designed to maximize burdensome penalties and fees, while ratcheting up interest rates as high as 30 percent. Companies bombard unwary consumers with teaser packages that promise very low interest rates to start, while reserving for themselves the right to raise rates whenever they choose. The details are buried in deliberately arcane contracts that run 30 pages long and that even lawyers have trouble understanding.

Congressional investigations and studies by consumer advocates have exposed other unsavory practices. Some card companies apply penalty rates retroactively — to purchases that were made before the penalty was incurred or in some cases to debts that were even paid off. As one Congressional witness pointed out, the credit card industry is the only one allowed to increase the price of a product after it has been sold.

Under a provision known as “universal default,” a cardholder who pays a credit card company faithfully can still be hit with a high penalty interest rate for missing payments with another creditor. In another despicable tactic known as “double cycle billing,” a cardholder who pays $450 of a $500 balance is charged interest on the entire amount as opposed to the unpaid balance.

State usury laws would once have precluded many of these practices, but those have been preempted by federal regulations that are increasingly designed to make banks and credit card companies happy — rather than protect consumers.

A bill introduced by Senator Levin would limit “penalty” interest rates to an additional 7 percent above the previous rate. It would also prohibit retroactive penalties and double cycle billing, and it would limit the amount of fees companies could charge customers who exceed their credit limit.

Passing the Levin bill would be a good start. But Congress needs a comprehensive approach to this problem. Lawmakers need to ban deceptive card offers outright, strengthen federal oversight and toughen truth-in-lending laws.

Meanwhile, American consumers should think long and hard before they accept credit card offers that are too good to be true.

[rek]

"If the government wants to fix the problem of "bad loans", they need to change the rules and only they can change the rules." AND, those in the "Same Boat", won't bore a hole in it.........

The preservation of privilige requires the exercise of power.....The power to inform, or

dis-inform. Decisions disguised as Democracy DO NOT empower the people, but rather continue the privilige of the few.

Albert E. said "The problems of the world won't be solved by the level of thinking, that created them." And so, we/county are where we have accepted it to be, in that Elections are won by "Rules", but legitimacy is formed by public acceptance.

As you said, think long and hard about offers that are too good to be true.

cue "Spirits in the Material World"............

[Marika]

"If the government wants to fix the problem of "bad loans", they need to change the rules and only they can change the rules." AND, those in the "Same Boat", won't bore a hole in it.........

The preservation of privilige requires the exercise of power.....The power to inform, or

dis-inform. Decisions disguised as Democracy DO NOT empower the people, but rather continue the privilige of the few.

Albert E. said "The problems of the world won't be solved by the level of thinking, that created them." And so, we/county are where we have accepted it to be, in that Elections are won by "Rules", but legitimacy is formed by public acceptance.

As you said, think long and hard about offers that are too good to be true.

cue "Spirits in the Material World"............

Oh!! BINGO!

[Cadillac Jim]

Predatory lending practices are rampant and the root of the subprime crisis, and there is a whole lot more of it to come. The credit card scams mentioned by Marika are one example, and the recession of the early 1970's was really exacerbated by credit card default. The same thing is happening in home loans now; I recently heard of a friend in VA near Washington who, a year or two ago, asked Wells Fargo what they were qualified for in a home loan, and were told $900K. He replied "Are you kidding?" and they lost interest (no pun intended). Later, when they needed a bridge loan to carry them until their old house sold, Wells Fargo wasn't interested in talking to them. This gives "Ask about our plans to own your home" a meaning that is scary to all of us.