Predatory lending annual toll - $9.1 billion

WASHINGTON – Credit unions are well-aware of the abuses and consequences of predatory lending on borrowers. Now, the North Carolina-based Coalition for Responsible Lending has quantified in a report the sobering ramifications of the lending abuse practice – predatory lending costs borrowers an estimated $9.1 billion annually. CRL Spokesman Martin Eakes, CEO of Self-Help CU presented the findings of the report, “Quantifying the Economic Cost of Predatory Lending” to the U.S. Senate Banking, Housing and Urban Affairs Committee in his testimony during the two days of hearings the committee held July 26-27 on predatory lending abuses and possible reforms. CRL’s estimate is based on two predatory lending practices: * equity stripping, which is characterized by excessive fees collected up front, such as origination or broker fees; financed fees, such as single premium credit insurance; and back-end fees, like prepayment penalties. CRL estimates the cost of these practices at $6.2 billion annually. * Risk-rate disparities in which borrowers are charged a higher interest rate than risk can justify for the loan. According to the report, low-income borrowers pay an estimated $2.9 billion in excess interest each year. * Excessive foreclosures, caused by predatory lenders’ habit of making loans without regard to a borrower’s ability to repay. “The most important lending issue today is no longer denial of credit, but the terms of credit,” said Eakes. “While increased access to credit for families with impaired credit histories is to be applauded, the prevalence of subprime loans with abusive characteristics has been devastating to families and neighborhoods,” Eakes offered. – [email protected]