Risky Lending Seems to be On the Rise Again

The ghouls are back again. And it's still months until Hallowe'en.

What else but "ghouls" would you call people whose business model is based on taking advantage of the unsophisticated?

In yesterday's New York Times, reporters Jessica Silver-Greenberg and Tara Siegel Bernard recounted the following story:

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

As Alejandro herself said, "Even I wouldn't make a loan to me at this point." (full story, here)

So why are so many "reputable" financial institutions ready to extend her credit?

Because subprime borrowers pay maximum rates (up to 29%), and often get charged late fees as well.

It's a way for the banks to make up for "the billions in fee income wiped out by regulations enacted after the financial crisis."

But subprime borrowers are all too often, in the words of one bankruptcy attorney, "addicted to credit."

Think of the bank, then, as your friendly neighborhood pusher.

Moreover, to many, this signals a return to the risky lending practices that got us all into the 2008 financial implosion. Did we learn nothing? Apparently not.