Predatory Lending?

The NAACP and other "progressive" organizations have labelled banks that issue sub-prime mortgages and credit cards with high interest rates as "predatory lenders."

As someone who has engaged in unwise financial practices, such as an excessive use of high interest credit cards and habitual refinancing, I can tell you that this is BS.

Any financial institution that engaged in fraud or a violation of stated contractual terms should be prosecuted to the full extent of the law. But, by definition, any financial transaction that is free of fraud or contractual violations does not constitute predatory lending, because in a free society:

1. It is the right of each individual of sound mind and body to determine if the benefits of a financial transaction outweigh the costs. The state does not have the right to make this determination. No one forced me to utilize the financial tools that were presented to me. At the time I wrongly judged them to be my best options.

2. It is the responsibility of each individual to understand the terms of a financial contract that they have agreed to partake in. Those who undertake contracts without understanding them have no one to blame but themselves. Although the terms were not to my financial benefit, they were stated in the contract.

3. If it is beyond their capacity to understand the stated terms, it is their responsibility to seek the assistance of a lawyer or any other individual to help clarify the terms. Those who do not fully understand terms should not undertake an agreement. Because I recognized my inability to understand complex contracts, I hired a lawyer to check the home purchase and home loan contract.

4. It is the right of a financial institution to determine the rate of return (interest rate) of a transaction, based on the statistical risk of prospective participants via a credit, income and assets analysis. The higher the statistical risk, the more individuals in that category (for example people with credit scores of 600 or less) will default. Accordingly, to offset the higher default rate, it is reasonable for a financial organization to charge higher interest rates to members of that category. In other words banks charge higher interest to rates to people with poor credit because they are a greater risk.

5. The most significant factor in higher defaults of individuals with sup-prime loans is not the higher interest, but the general track record of financial irresponsibility borrowers. The mere fact that they chose to partake in, rather than opt out of a sup-prime transaction is a further indication of their irresponsibility.

6. To have the government mandate that financial organizations offer more favorable terms (such as lower interest rates) to higher risk groups will result in a dramatic decrease in the access of the said groups to capital. In other words, mandating lower returns on groups with higher default rates (lower credit scores) will result in a sharp decrease in the supply of credit to individuals of those groups, which will disproportionately affect African-Americans and Latinos.

7. If the government mandates that financial institutions provide an equal number of loans to "underrepresented communities" with with statistically lower credit scores, the default rate (foreclosures) will result. And the financial institutions will have less capital to provide loans to lower risk individuals and groups.