Responsibility In Lending - New Jersey Law Journal
I read an editorial in the April 9th edition of the New Jersey Law Journal that sums up the situation many homeowners facing foreclosure or considering bankruptcy are experiencing today. I've written about the need for lenders to be responsible when making loans, and here's a hat tip to the Law Journal's editorial staff.
It is commonplace for banks and other financial institutions to offer credit cards to "pre-selected" borrowers with low initial interest rates for extended periods of time. Is it too good to be true?
In 2005, banks and related financial institutions succeeded in securing the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act. President Bush declared it would make more credit available to poor people. In 1978 the U.S. Supreme Court ruled that banks were free to charge the interest rates in their home states to customers across the country. This set the table for a feast for financial institutions.
The new bankruptcy laws contain a provision which forces many debtors into Chapter 13 compulsory repayment plans rather than a discharge. A Housing Judiciary Committee report had stated that such compulsion might be considered involuntary servitude.
In the worst situation of a borrower's default, the lender can impose interest rates as high as 29.99 percent plus late fees. Lenders fall all over each other in extending loans to persons who are desperate for money, by offering no or low interest for loans.
Such loans carry many conditions. Among them, for example, is prompt payment of each monthly payment on a designated date. Failure to pay promptly results in canceling the favored rate and leaving the debtor with increased rates determined by the lender. People who fall into the category are called "revolvers". They are the ultimate targets of the extremely favorable rates. It is reported that a great many who seek relief in Bankruptcy Court could not repay any debts. Many of these became indebted for reasons beyond their control, like loss of a well paying job, large medical expenses, sudden emergency situations, etc. These people have little prospect of repaying loans that grow expansively at loan-shark rates and late fees.
A great many people do not have healthcare coverage. This aggravates the financial situation of middle-class people who live check to check and who do not have the means to pay health care providers for extraordinary care they may need. Students and seniors who live on pensions are particularly vulnerable.
There was a time when excessive interest rates were considered to be "usury". Easy credit and laws favoring lenders do not speak well for the free market. The rich get richer and the poor and middleclass get deeper and deeper in debt.
