Ethics and Greed Collide

I was happy to see this post today over at Enclave. S-Town Mike takes predatory lenders to task, and rightly so. I have seen lending practices from just about every angle, in fact, the financing arm of auto sales is what ultimately drove me from the business. I mean, it got so bad, I walked away from 60k a year in a bad year. Mike makes the perfect point, that current lending practices depend on exploiting those least able to defend themselves. I have a few friends that have had their credit go bad for any number of reasons. One of them is a single dad, who I wouldn’t describe as an extravagant spender, but who did make a practice of shifting balances to lower rate cards over and over. He never skipped a payment, but once his balance became pretty high, his card issuer suddenly, without explanation, raised his interest rate to 30%. Thirty percent! He called to ask why, and they essentially said because they could.

The mortgage industry is complicated, and I don’t pretend to understand the whole lending portfolio thing. What I do understand is that teaser rates take advantage of those already underwater. I believe an area that needs some investigation is conversion loans, or, more precisely, consolidation loans. A guy with a high revolving debt consolidates to a loan that is tied to his home. The lender now has real estate as security, where before he had almost no leverage, and shared some of the risk. Now the same guy has a speed bump in his life, lost job, debilitating illness, whatever, and runs up his credit cards yet again. Now, he has a lein on his home, and high rates of interest on his revolving credit. So he looks again to re-finance, and the vultures start flying lower again. Don’t get me started on all those who profit from this, escrow companies, appraisers, etc. It’s a near impossible cycle to escape from.

I know this will drive the Libertarians crazy, but this is an area where I simply do not trust the market to “right itself”. I expect the Govt to take a larger role with respect to regulating lending. I’d like to see this organization open an office in Tennessee. I have tried to contact them, and while I appalud their goals, they are slow to assist when someone shows interest. Perhaps someone will read this, and agree to help me develop a program that aims to educate High School students about credit/contracts and other basic tenants of financial literacy. I have no interest in cashing in like Dave Ramsey. Just put the info out there, no “program” to sell, no book, just a presentation that they might remember when they sit down and negotiate their first major purchase.

Anyway, thanks to S-Town Mike, and I expect Kleinheider to acknowledge my use of paragraphs.

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5 Comments

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5 responses to “Ethics and Greed Collide

  1. 1) It is almost depressing to me read this. I’ve just gotta remember that there is hope. There is always hope.

    2) I’m with you on the education of high school students about money management. Heck, I didn’t even know how it all really worked when I got out of college with a freakin’ business degree. They teach book knowledge instead of practical everyday use of the information. Upon graduating from high school, you should know how to manage a household more than the basic tenant of trigonometry. Period.

  2. S-townMike

    And thanks for the mention, Mack. I can tell you that Oasis Center has a program at Stratford High School to assist students who want to learn more about resisting predatory lending in their neighborhoods. They do some of the education that you would like to see, but I don’t believe there is a similar program in other schools. You might check with the folks at Oasis if you are interested.

  3. You aren’t kidding. As a Realtor, I have to constantly deal with predatory lenders and they are UGLY. Significantly, we Realtors are heavily regulated, but lenders are not. We have extensive ethics training and have an oversight commission at all levels. Locally is our association. The state oversight is through the association and real estate commission. Nationally, it’s the NAR and the Equal Housing folks. Lenders? No one. What a joke.

  4. Mack

    Mike, thanks, I’ll check them out. You are always all over the important stuff.

    Kathy T, I appreciate your input. I wonder if you feel that you are over-regulated? I’m pretty liberal, so I usually want some Govt oversight, smartly applied, but I know next to nothing about Realtors. I can tell you that when I sold my last home, I did so in days, for top dollar, and by-passed what I thought was an exorbitant commission the realtors wanted….

  5. rhbee

    Hi there, this visit occured because of the new wordpress feature that showed my commenter posts similar to mine. Two things that I can add here. One, I am just finishing a book entitled the Trillion Dollar Meltdown by Charles Morris. His analysis of the current credit bubble burst and its causes might give you pause about referencing a project that features a picture of Allan Greenspan. Two, Trent at the simpledollar.com has just completed a tremendous review of a book that analyzes the way we teach money to children throughout the culture.

    What I am wondering is how we could bring more pressure to bear on the credit card industry to lift their veil of secrecy and force them to match their rates to the current economy. After all, the Fed is almost at 0% so the money they are printing up is free to the lender. Sub-prime resets are starting to show this in the not so high jumps. Why aren’t the credit cards showing this change?

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