![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/tny_au_en_usoz_2.gif)
A Poor Economy Spells Predatory Lenders and Unethical Creditors
While downturns in the economy might force ethical lenders to become more careful about extending lines of credit, the opposite is true of predatory lenders who prey upon consumers in difficult circumstances. It may seem that creditors are not writing new loans or opening new lines of credit for consumers with good credit scores and that is generally true in a poor economy. Creditors would much rather stake a higher risk consumer and charge them considerably higher interest rates. This makes it possible for the creditor to earn a greater return in a shorter period of time regardless of the fact the higher risk consumer will probably end up defaulting somewhere down the line.
Predatory lenders often pile up mountains of consumer debt and then sell that debt to other banks and lenders who have experienced collections departments or who employ in-house collection agencies to go after debtors. If the collection attempts fail, those bad loans can be deducted as operational business losses by the creditor and written off as an ordinary loss less 10%.
Companies like Capital One and HSBC are at the top of the list because they issue high interest rate cards to anyone who will sign on the dotted line and charge them ridiculous interest rates and fees. When the cardholders default on the loans, the issuiing banks who traditionally took the damage as a tax write-off, are now strapped for cash and lack sufficient equity to leverage more consumers into their trap.
If you are wondering how this scenario could possibly be profitable, it is in the short term but in the long run, this strategy is fatalistic, as we are seeing with the recent collapse of the lending industry which has required federal bailouts. This doesn’t mean that these lenders who started the mess with their unethical tactics are going to close up shop and run away, in fact, it means the opposite. Expect more and more high risk lines of credit to be opened by people with poor credit histories and more predatory lenders targeting these high risk consumers because the American taxpayer will foot the bill in the end.
Tagged: poor economy, predatory lender, creditors
by JC
the whole system of credit has become a nightmare. people are bombarded with advertisements to spend and credit cards to spend with, and when it unwinds, in ways now it never has before, it creates a vicious cycle that even stings those like me who pay their full balance every month and spend within my means… namely in crashing home equity and stock valuations
by Colleen
I suspect what our current economic situation will produce is a strong economy but not for another 2-3 years. The bail-outs will help temporarily, but when the government money runs out and the there is nothing left to give, then the weaker companies in America (including banks) will die. Kinda like survival of the fittest. Only the strong will remain to create a strong economy.
by Sascha Singels
All this looks very scary. Why would unethicals lenders remian on the market, since they are responsible for all that mess. I hope something will be done to avoid them doing such things and let the place to lenders that are good for the whole economy. Poor people we are….
by Experience Modification
I have a feeling that the worst is yet to come. With this new housing bill that may be coming we could see some serious predatory lending ahead. I can see scammers out there saying that their new home loans are government backed only to end up screwing you some how.
by Ratgeber Gesundheit
Oh is this true? The bail out scheme is just to cover the irresponsible business made by banks, lenders, etc…? I thought there are strict guidelines to consider before one can avail of the bail out. hmmmm, quite puzzled on this scenario.
by almir
its amazing how so many companies are taking the boot including credit companies including all of the money they make off the interest rates
by Alejandro Seguros Coche
Hope we will get over of this crisis soon. It’s so sad seeing how big companies close their doors and loads of people lose their jobs. Terrible!
cheers.
by Keegan
Credit company’s make so much money its sad. I kind of glad that the government is putting a lock down on them. I don’t like to see the government stepping in on business but when the business is putting a monopoly on America someone has to step in.