While the legislative news of late has primarily focused on the health insurance law, there’s another issue which is being wrangled over in Congress at the moment which is of particular interest to me; the bill which is designed to create more consumer protections for borrowers, with a particular eye toward abusive lending. It’s pretty demonstrably true that unfair lending practices were certainly a contributing factor in the economic meltdown, and that consumers deserve more protections from predatory lenders just in general, not just because of the fact that it hurts the economy.
Making it all the more unfortunate that the bill appears to be headed for a watered down compromise which absolves some of the worst offenders[1. This seems to be a bit of a theme with Congress this year, does it not?]. There hasn’t been a lot of coverage not just of this bill, but of predatory lending in general, in discussions about social justice issues, so I thought I would take a moment to talk about why predatory lending is a social justice issue, which I think will illustrate why it is something which you should care about if you do not already.
The definition of ‘predatory lending’ is a bit nebulous. It’s generally defined as unfair and abusive lending practices. These include broker kickbacks on loans, excessive fees (including interest and origination fees), prepayment penalties, and contracts which are structured in a way which make the loans functionally impossible to pay back. For example, one might have a minimum payment which would pay off a balance of $5,000 in hundreds of years. It bears noting that lenders also flat out lie about the terms of loans or swap paperwork on unwary borrowers, thus forcing people into loan agreements they were not fully informed about.
The terms of the loan are just one facet of the issue. Predatory lenders have a preselected body of potential customers and they use steering and targeting techniques to force these customers into their fold. People are informed that they can only get a loan through the predatory lender, that they must act now or lose their chance, that they can take out loans much higher than they can afford, that loans will persist through bankruptcy, that debtor’s prison still exists. The end result is that the borrower becomes trapped in a loan which cannot be repaid, and often ends up in a cycle of increasing debt; as loan payments eat up monthly income, more debt is incurred, making it extremely difficult to get ahead. This in the mythical land of opportunity.
This alone should be reason enough to care about predatory lending. It is a grossly unfair practice which hurts consumers and also hurts the larger economy as a whole by creating a heavily indebted consumer class.
But there’s more. Victims of predatory lending fall into some familiar demographics. They tend to be disproportionately poor, for a number of reasons including the fact that people who are living from paycheck to paycheck do not have the time to do lots of research before taking on debt, and are most likely to be in need of emergency funds for things like medical expenses. They are also disproportionately of lower education; predatory lenders target people who are less likely to be aware of their rights and who are less likely to be able to evaluate loan terms with a critical eye. Someone who has not attended high school may not have the capacity to fully understand the terms of a confusingly-worded lending contract.
And they are also more likely to be people of colour, in no small part because people of colour are more likely to be living in poverty and to have limited access to higher education. What predatory lending does is prey on an underclass of marginalised people, thus ensuring that this underclass stays marginalised. And that is most definitely a social justice issue.
These borrowers are demonized by the media and financial critics. They are called stupid, mocked and belittled for not understanding the loans they entered into, treated like garbage when they default on loans they had no realistic expectation of repaying. Choosing to focus on the borrowers rather than the lenders allows the media to ignore the problematic social implications of predatory lending; that it is exclusively focused on some of the most vulnerable members of society, the people most in need of assistance, and that it is perpetrated by some of the most powerful members of society.
Attitudes towards people abused by predatory lenders reflects general social attitudes about people in oppressed classes; attitudes which suggest that these people remain in such classes by choice or misdeed, rather than as a result of social structures. To blame the single mother with three children for getting a payday loan with 40% interest is to ignore the circumstances which forced her to take out that loan in the first place. It’s easier to blame her with the personal responsibility argument than it is to examine social complicity and how we all contribute to the persistence of predatory lending.
There seems to be some hesitance to connect class issues and social justice issues in some corners of the social justice world; to talk about issues like personal finances, to discuss the social implications of lending practices, to examine the gap between rich and poor and the way it intersects with issues like race and education. This in turn means that people may not be aware of the scope of issues like predatory lending.
And it means that we do not see the same mobilisation against predatory lending tactics that we see for issues deemed of importance in social justice communities, like reproductive rights, even though there are intersections even here; one of the barriers to accessing a safe abortion, for example, is money, and people can and do take out payday loans to pay for abortions. Class issues are a vital component of many of the social issues we confront and discuss, which means that we need to be raising consciousness about them as well. All of the pieces of the puzzle need to be addressed to effect change.