Defining and Detecting Predatory Lending
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Predatory Lending and the Subprime Crisis$
Journal of Financial Economics ] (]]]]) ]]]–]]] Contents lists available at ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec Predatory lending and the subprime crisis$ Sumit Agarwal a, Gene Amromin b, Itzhak Ben-David c,d,n, Souphala Chomsisengphet e, Douglas D. Evanoff b a National University of Singapore, Singapore 119077, Singapore b Federal Reserve Bank of Chicago, Chicago, IL 60604, USA c Fisher College of Business, The Ohio State University, Columbus, OH 43210, USA d NBER, Cambridge, MA 02138, USA e Office of the Comptroller of the Currency, Washington DC 20219, USA article info abstract Article history: We measure the effect of a 2006 antipredatory pilot program in Chicago on mortgage Received 29 April 2011 default rates to test whether predatory lending was a key element in fueling the subprime Received in revised form crisis. Under the program, risky borrowers or risky mortgage contracts or both triggered 19 October 2012 review sessions by housing counselors who shared their findings with the state regulator. Accepted 29 July 2013 The pilot program cut market activity in half, largely through the exit of lenders specializing in risky loans and through a decline in the share of subprime borrowers. JEL classification: Our results suggest that predatory lending practices contributed to high mortgage default D14 rates among subprime borrowers, raising them by about a third. D18 & 2014 Elsevier B.V. All rights reserved. G01 G21 Keywords: Predatory lending Subprime crisis Household finance Default 1. Introduction as imposing unfair and abusive loan terms on borrowers, often through aggressive sales tactics, or loans that contain Predatory lending has been the focus of intense aca- terms and conditions that ultimately harm borrowers demic and policy debate surrounding the recent housing (US Government Accountability Office, 2004 and Federal crisis (2007–2010). -
Predatory Lending Practices in the Subprime Industry
PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION before the HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES on Predatory Lending Practices in the Subprime Industry May 24, 2000 I. INTRODUCTION Mr. Chairman and members of the Committee: I am David Medine, Associate Director for Financial Practices, of the Federal Trade Commission's Bureau of Consumer Protection.(1) I appreciate the opportunity to appear before you today on behalf of the Commission to discuss the serious problem of abusive lending practices in the subprime lending industry, commonly known as "predatory lending." I will discuss the recent growth of the subprime industry, predatory lending practices that reportedly are occurring in the industry, the Commission's recent activities in this area, and possible statutory changes to enhance consumer protection. First, however, let me briefly speak about the Commission's role in enforcing laws that bear on these problems. The Commission has wide-ranging responsibilities concerning nearly all segments of the economy. As part of its mandate to protect consumers, the Commission enforces the Federal Trade Commission Act ("FTC Act"), which broadly prohibits unfair or deceptive acts or practices.(2) The Commission also enforces a number of laws specifically governing lending practices, including the Truth in Lending Act ("TILA"),(3) which requires disclosures and establishes certain substantive requirements in connection with consumer credit transactions, the Home Ownership and Equity Protection Act ("HOEPA"),(4) which, as part of the TILA, provides special protections for consumers in certain non-purchase, high-cost loans secured by their homes, and the Equal Credit Opportunity Act ("ECOA"),(5) which prohibits discrimination against applicants for credit on the basis of age, race, sex, or other prohibited factors. -
A History of Usury and Debt
Beggar Thy Neighbor A History of Usury and Debt By Charles R. Geisst When he finally returned to Rome, he did found in almost all societies since antiq- so a wealthy man. uity. Charging interest on loans is the Seven years before the assassination The problem caused Cicero to coin a oldest financial practice. It has also been of Julius Caesar, an acrimonious dispute name for the practice which became a decried almost from the beginning as broke out between Marcus Tullius Cicero, cornerstone of Roman law. The story was predatory, with the lender seeking to take at the time the provincial governor of told innumerable times over the next 1,800 advantage of the borrower. Whether loans Cilicia, and Marcus Junius Brutus, a young years. The Roman historians dutifully were made in cash or in kind, unscrupu- provincial Roman administrator. The elder recorded it, and Adam Smith alluded to lous lenders were said to be practicing a statesman chided the younger man for it in the Wealth of Nations. According to beggar-thy-neighbor policy by ensuring using his administrative post in Cyprus to Roman law, simple interest was permit- that the borrowers were disadvantaged to earn ill-gotten gains at the expense of the ted, but compound interest was anathema. the point of losing their collateral, or in local people. Cicero received reports that Compounding had been used in many extreme cases even losing their freedom Brutus had been lending money in Cyprus ancient civilizations, but the Romans even- or families. Charging simple interest was at four times the maximum rate stipulated tually made it illegal. -
Beyond Europe's Financial Bifurcation Point
Beyond Europe’s financial bifurcation point: Policy proposals for a more stable and more equitable financial system Gary Dymski Leeds University Business School Annina Kalterbrunner Leeds University Business School The European citizens need a financial system that provides for their credit and payments- system needs without imposing costs from excessive volatility, recurrent crises and financial discrimination. Such a financial system will use productive finance to reduce inequality by levelling “up.”As things stand, the European financial system both reflects the effects of three decades of worsening inequality and operates in ways that deepen it. This policy brief proposes ten reforms aimed at breaking the inequality-finance cycle in Europe. Economic Policy Brief No.4 2014 1. Introduction The people of Europe need a financial system that provides for their credit and payments-system needs without imposing costs from excessive volatility, recurrent crises and financial discrimination. Such a financial system will use productive finance to reduce inequality by levelling “up.” As things stand, the European financial system both reflects the effects of three decades of worsening inequality and operates in ways that deepen it. Super-leveraged speculation enriches the 1% in the financial system’s inner core while fragilizing the financial institutions on which commerce, industry, and households depend. When these institutions’ weaknesses are exposed, it is the too-big-to-fail megabanks most prone to excessive risk-taking that have absorbed the lion’s share of bailout support: not as a reward for cushioning the economy from crisis, but because of fear that their failure could lead to system collapse. -
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R E S E A R C H O N M O N E Y A N D F I N A N C E Discussion Paper no 2 Racial Exclusion and the Political Economy of the Subprime Crisis Gary A Dymski University of California Center Sacramento (UCCS) 15 February 2009 Research on Money and Finance Discussion Papers RMF invites discussion papers that may be in political economy, heterodox economics, and economic sociology. We welcome theoretical and empirical analysis without preference for particular topics. Our aim is to accumulate a body of work that provides insight into the development of contemporary capitalism. We also welcome literature reviews and critical analyses of mainstream economics provided they have a bearing on economic and social development. Submissions are refereed by a panel of three. Publication in the RMF series does not preclude submission to journals. However, authors are encouraged independently to check journal policy. Gary A Dymski, Address: UCCS, 1130 K Street Suite LL22, Sacramento CA 95814, USA. Email: [email protected]. The author gives special thanks to Mariko Adachi, Philip Arestis, Glen Atkinson, Dean Baker, David Barkin, Etelberto Cruz, Jim Crotty, Silvana De Paula, Shaun French, Masao Ishikura, Tetsuji Kawamura, Costas Lapavitsas, Noemi Levy, George Lipsitz, Andrew Leyshon, Tracy Mott, Jesus Munoz, Anastasia Nesvetailova, Ronen Palan, Yoshi Sato, Tokutaru Shibata, Jan Toporowski, Thomas Wainwright, Michelle White, Clyde Woods, and two anonymous referees of this journal for their insightful comments on the work presented here, and he acknowledges the useful feedback he received from participants in the January 2008 Association for Evolutionary Economics conference, in the 2008 conference on Structural Change and Development Policies at the National Autonomous University of Mexico, and in seminars at Denver University, the University of Nevada-Reno, Nottingham University, and the University of Tokyo. -
Predatory Mortgage Loans
CONSUMER Information for Advocates Representing Older Adults CONCERNS National Consumer Law Center® Helping Elderly Homeowners Victimized by Predatory Mortgage Loans Equity-rich, cash poor, elderly homeowners are an attractive target for unscrupulous mortgage lenders. Many elderly homeowners are on fixed or limited incomes, yet need access to credit to pay for home repairs, medical care, property or municipal taxes, and other expenses. The equity they have amassed in their home may be their primary or only financial asset. Predatory lenders seek to capitalize on elders’ need for cash by offer- ing “easy” credit and loans packed with high interest rates, excessive fees and costs, credit insurance, balloon payments and other outrageous terms. Deceptive lending practices, including those attributable to home improvement scams, are among the most frequent problems experienced by financially distressed elderly Americans seeking legal assistance. This is particularly true of minority homeowners who lack access to traditional banking services and rely disproportionately on finance compa- nies and other less regulated lenders. But there are steps advocates can take to assist vic- tims of predatory mortgage loans. • A Few Examples One 70 year old woman obtained a 15-year mortgage in the amount of $54,000 at a rate of 12.85%. Paying $596 a month, she will still be left with a final balloon payment of nearly $48,000 in 2011, when she will be 83 years old. Another 68 year old woman took out a mortgage on her home in the amount of $20,334 in the early 1990s. Her loan was refinanced six times in as many years, bringing the final loan amount to nearly $55,000. -
S Revolution! the Battleplan Against the NWO! by Thomas Eidsaa Last Edited 13.04.2020 a Compilation of Articles, Read Alongside Internet
1 2 The People`s Army`s Revolution! The battleplan against the NWO! By Thomas Eidsaa last edited 13.04.2020 A compilation of articles, read alongside internet. Exposing and defeating the black magic NWO! I wish you a happy revolution! Be careful! We are not fighting an armed conflict but an infowar. ¨Peace love anarchy!¨ PS! My Christian book series are national-conservative and religious conservative. This book is more liberal, dedicated to why we need a revolution and the few ways of actually achieving revolution. Cover and all writing by Thomas Eidsaa copyright 2019. No part in this publication may be used or transmitted in any way without the expressed written consent of the publisher, except for short excerpts for the use in reviews. 3 Other books by Thomas Eidsaa: The GRRRRR book-series, or The Great Romantic Revivalist`s Reformation Revolution Renaissance series, is a an eye-opening Christian series which detail all my research into Christianity, neo- charismatic theology, apologetics, ontological arguments, the problem of evil, eschatology, and conspiracy theories of great importance every Christian needs to understand. It is a work aimed at waking you up and expose the evil you never thought existed. What you don`t know can still kill you. It is a guide, and compendium of important topics relating to the radical, Christian faith in the dangerous, unpredictable 21st century death of Europe. I take the reader on an amazing journey – uniting 1st century Nazarene knowledge with 21st century science, theology and societal problems. I personally believe the knowledge therein will create peace on Earth. -
The Cumulative Costs of Predatory Practices
? THE CUMULATIVE COSTS OF PREDATORY PRACTICES The State of Lending in America & its Impact on U.S. Households Sarah D. Wolff June 2015 www.responsiblelending.org Table of ConTenTs Foreword . 4 Executive Summary . 6 Lending Abuse and Their Costs . 8 Who Pays . 22 Cumulative Impact . 29 A Role for Regulation . 30 Conclusion . 34 References . 35 Appendix . 39 foreword By Michael Calhoun, President Shortly after the Center for Responsible Lending (CRL) started in 2002, we estimated the total cost of predatory The difference between a fair and mortgage lending to be $9.1 billion. That figure was affordable loan and a predatory of great concern then. Today the costs of all types of loan often becomes the difference abusive lending have become literally incalculable, but the total adds up to hundreds of billions of dollars. As a between achieving greater pros- whole, our series on The State of Lending in America perity and falling into a cycle of and its Impact on U.S. Households shows how predatory unending debt. lending has derailed economic opportunity for millions of Americans and weakened the U.S. economy. In previous State of Lending chapters, we focused on specific types of loans—mortgages, credit cards, and payday loans, just to name a few—as well as practices in debt settlement and collection. In this final chapter, we take a broader look at the lending landscape. What are common characteristics of abusive loans? Who is most likely to be targeted? What are the costs? Finally, we also look at why predatory lending matters beyond its impact on individuals who are harmed. -
Maintaining Stability in a Changing Financial System
The Panic of 2007 Gary B. Gorton I. Introduction With a full year elapsed since the panic of 1907 reached its crisis among this country’s financial markets, its banking insti- tutions, and its productive industries, it ought to be possible to obtain an insight into the nature of that economic event such as could not easily have been obtained when the phenomena of the crisis itself surrounded us. —Alexander Noyes, “A Year after the Panic of 1907,” Quarterly Journal of Economics, February 1909. We are now about one year since the onset of the Panic of 2007. The forces that hit financial markets in the U.S. in the summer of 2007 seemed like a force of nature, something akin to a hurricane, or an earthquake, something beyond human control. In August of that year, credit markets ceased to function completely, like the sudden arrival of a kind of “no trade theorem” in which no one would trade with you simply because you wanted to trade with them.1 True, thousands of people did not die, as in the recent natural disasters in Asia, so I do not mean to exaggerate. Still, thousands of borrowers are losing their homes, and thousands are losing their jobs, mostly bankers and others in the financial sector. Many blame the latter group for the plight of the former group; ironic, as not long ago the latter group was blamed 131 08 Book.indb 131 2/13/09 3:58:24 PM 132 Gary B.Gorton for not lending to the former group (“redlining” it was called). -
Usury: Utilitarian Or Useless?
Florida State University Law Review Volume 3 Issue 2 Article 1 Spring 1975 Usury: Utilitarian or Useless? Jarret C. Oeltjen Florida State University College of Law Follow this and additional works at: https://ir.law.fsu.edu/lr Part of the Law Commons Recommended Citation Jarret C. Oeltjen, Usury: Utilitarian or Useless?, 3 Fla. St. U. L. Rev. 167 (1975) . https://ir.law.fsu.edu/lr/vol3/iss2/1 This Article is brought to you for free and open access by Scholarship Repository. It has been accepted for inclusion in Florida State University Law Review by an authorized editor of Scholarship Repository. For more information, please contact [email protected]. FLORIDA STATE UNIVERSITY LAW REVIEW VOLUME 3 SPRING 1975 NUMBER 2 USURY: UTILITARIAN OR USELESS? JARRET C. OELTJEN TABLE OF CONTENTS I. INTRODUCTION ...... ............... 169 II. HISTORY ................ 171 A. General History ..... ............. 171 B. Sales Credit and Credit Cards ... ........ 180 C. Recent Developments ... ........... 182 III. METHODS USED To AVoID USURY LAWS ...... 184 A. The Corporate Exception ... .......... 184 B. The Time Price Doctrine ......... 186 C. Option To Repurchase, Sale-leaseback, and "Wrap-around" Mortgage .. ......... 187 D. Discounting Negotiable Paper ... ........ 188 E. The Wage Purchase .... ............ 189 F. The CollateralAdvantage Doctrine . ....... .190 G. Choice of Laws ... ........... 193 H. Profit Sharing ..... .............. 193 I. Additional Fees Charged by Lenders . ...... 194 J. ComputationalDifferences ... .......... 195 IV. FINANCE CHARGES ...... .............. 196 A. Composition ..... .............. 196 B. The Charge ..... .............. 198 V. SURVEY OF STATUTORY USURY LAW IN FLORIDA .... 201 A. General Usury-Chapter 687 .. ........ 201 B. Consumer Finance Act-Chapter 516 ....... .201 C. Industrial Savings Banks (Morris Plan Banks)-Chapter 656 ... ........... 202 D. -
THE EFFECTS of USURY LAWS: EVIDENCE from the ONLINE LOAN MARKET Oren Rigbi*
THE EFFECTS OF USURY LAWS: EVIDENCE FROM THE ONLINE LOAN MARKET Oren Rigbi* Abstract—Usury laws cap the interest rates that lenders can charge. Using improved significantly over time.4 More recent empirical data from Prosper.com, an online lending marketplace, I investigate the effects of these laws. The key to my empirical strategy is that there was studies have focused on the effects of access to credit at initially substantial variability in states’ interest rate caps, ranging from very high interest rates, also known as payday loans. The 6% to 36%. A behind-the-scenes change in loan origination, however, sud- main findings of this work are that obtaining credit at high denly increased the cap to 36%. The main findings of the study are that higher interest rate caps increase the probability that a loan will be funded, rates does not alleviate economic hardship but rather has especially if the borrower was previously just “outside the money.” I do not adverse effects on loan repayments, the ability to pay for other find, however, changes in loan amounts and default probability. The interest services, and job performance (Melzer, 2011; Skiba & Tobac- rate paid rises slightly, probably because online lending is substantially, yet imperfectly, integrated with the general credit market. man, 2009; Carrell & Zinman, 2008). A recent contribution to the debate is that of Benmelech and Moskowitz (2010), who demonstrate that imposing interest rate restrictions hurts, I. Introduction rather than helps, the financially weak. EGISLATED caps on interest rates, known as usury This paper contributes to the debate by exploiting an exoge- L laws, one of the oldest forms of market regulation, nous increase in the interest rate cap that has affected some have inspired considerable debate throughout their history.1 online borrowers. -
Avoiding Predatory Lending
California Department of Real Estate Avoiding Predatory Lending Protect Yourself in the Loan Process Don't fall prey to predatory lending! If you are in the market for a new loan to purchase real property or a loan to refinance an existing mortgage, the mortgage market place offers numerous types of loan products. Being knowledgeable about the loan process will help you find the most desirable loan product and avoid the pitfalls of predatory lending. About Predatory Lending The term "predatory lending" encompasses a variety of home mortgage lending practices. Predatory lenders often try to pressure consumers into signing loan agreements they cannot afford or simply are not in the consumers' best interest. Often, through the use of false promises and deceptive sales tactics, borrowers are convinced to sign a loan contract before they have had a chance to review the paperwork and do the math to determine whether they can truly afford the loan. Predatory loans carry high up-front fees that are added to the balance, decreasing the homeowner's equity. Loan amounts are usually based on the borrower's home equity without consideration of the borrower's ability to make the scheduled payments. When borrowers have trouble repaying the debt, they are often encouraged to refinance the loan into another unaffordable, high-fee loan that rarely provides economic benefit to the consumer. This cycle of high-cost loan refinancing can ultimately deplete the homeowner's equity and result in foreclosure. Predatory lending practices specifically prohibited by law include: • Flipping - the frequent making of new loans to refinance existing loans, • Packing - the selling of additional products without the borrower's informed consent, and • Charging excessive fees.