Banks Rediscovering Their Love of Subprime Lending
Think the banks have learned their lesson after the financial crisis and are going to avoid subprime--what many call predatory--lending? Think again. The gears of capitalism's profit drive are grinding right back into full swing.
...as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.
Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.
Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.
“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.
The issue here is that lending to people who can't pay back their bills results in dividends for the banks, misery for the loan recipients, and risk for all of us:
Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.
Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.
You think? Although the mortgage market remains closed and the Times interviewed several experts who were full of reassurances about managing risk, if this is what a prettier picture looks like for the economy, it's all the more reason to Occupy.