Hot on the heels of the foreclosure over-exposure in the news, consumer attention seems to have shifted to payday lending. Consumerist mashed together a map of payday loan centers with a map of census information, and the result is clear: payday lenders do, indeed, target less-than-affluent neighborhoods.
This shouldn’t surprise anyone, however, although it might cause us some consternation. The concentration in less-than-affluent neighborhoods should be unsurprising for the same reason that you won’t find an Aldi grocery store in an upper-middle-class neighborhood: lack of customers. Payday lending is a “subprime” market for unsecured and risky credit. There are few subprime borrowers in wealthier neighborhoods, where people have the credit score to get, say, a credit card with a bargain rate of, say, 19% APR, and don’t have to stomach the 300-1,000% APRs charged by payday loan centers.
In the wake of Donald Morgan’s staff report for the Fed, I have been thinking a lot about predatory lending, and more particularly about the myth of the rational borrower in a rational marketplace that Morgan seems to rely on in “Defining and Detecting Predatory Lending.” Lo and behold, along comes Credit Slips with a two-part essay on “The Myth of the Rational Borrower” in which new contributors Ted Janger & Susan Block-Lieb comment on a world of “rational lenders and irrational borrowers,” and test their theories against the backdrop of bankruptcy reform.
They also linked to their excellent law review article of a similar name, “The Myth of the Rational Borrower: Rationality, Behaviorism, and the Misguided ‘Reform’ of Bankruptcy Law.” We skimmed the abstract, but since bankrupcty law makes us sleepy, that’s about all we could get through.
So we don’t know if it supports our response to Mr. Morgan or not, but it appears to, and we look forward to Part Two of the professors’ blog posting, which we hope will be easier for a relative layperson to digest.
The San Francisco Chronicle ran a feature last Friday on the surprises that may be in store for a new homeowner in an “inclusionary housing” unit. Inclusionary housing is a popular form of affordable housing that is designed to integrate affordable housing into “regular” housing. For example, if a builder puts in a 10-unit apartment building, one or two of those units would be subsidized as affordable housing.
Of course, this means that, while a tenant or owner may pay less for rent or a mortgage than the rest of the building, they share the rest of the fees. Overall, we think inclusionary housing schemes are positive, but as this article shows, there may be a few surprises, and tenants and owners need to be prepared.
Last week we blogged about the Fed staff article “Defining and Detecting Predatory Lending”, by Donald P. Morgan. At the time, however, we did not have an actual copy of the article in our hot little hands. Now we do. As we said before, the article posits that the availability of credit is welfare enhancing, and that, since payday loans increase the availability of credit to consumers of modest means, the payday lending industry is welfare enhancing.
According to an article in the Detroit News last week, Fairway Trails Apartments in Ypsilanti, Michigan, will pay $50,000 to settle a lawsuit brought by a disabled man who asked to delay his rent payment by a few days to coincide with the arrival of his Social Security check.
The lawsuit alleged that Fairway Trails retaliated by attempting to evict Harry Tyus, 58, when he asked for the late rent payment. Mr. Tyus went to Fair Housing Center of Southeastern Michigan, who worked with the U.S. Department of Justice throughout the claim process at HUD (PDF link) and in U.S. District Court (PDF link).
As a point of clarification, the case involved retaliation. A landlord may not retaliate when a tenant requests a reasonable accomodation, whether or not the accomodation requested was reasonable or based on a qualifying disability. Congress decided that the reasonableness of a request should be determined by HUD or the courts, not individual landlords.
The findings come from a panel convened by Attorney General Lori Swanson and chaired by Prentiss Cox, professor at the University of Minnesota Law School. The suggestions to add criminal penalties on top of already-available civil ones is a result of the startling rise in foreclosures we have been reporting on at length.
The possible problem with the criminal sanctions is that many police departments lack the expertise to prosecute such claims, particularly because they involve so many thorny legal issues. The Attorney General only prosecutes “big” cases as a general rule, and so this will likely provide little deterrence to small-time predatory lenders. However, any additional remedies for consumers is a welcome change.
In a sensationally-titled report, “Debt Collectors Gone Wild,” ABC News reports on the results of a three-month investigation into debt collector practices. Unsurprisingly, ABC found that “many unscrupulous collectors routinely ignore the law.”
Rozanne Andersen of ACA International, however, would like you to know that “the vast majority of debt collectors follow the law and that the image of the bullying, abusive collector is an old stereotype. According to Anderson, “A debt collector is not the enemy of the consumer. His or her job is to help find a solution and help the person figure out a way to pay the debt.”
Ms. Andersen must be well paid. More on ABC’s findings, including collection call transcripts, after the jump.
Michigan Supreme Court Justice Elizabeth Weaver is a “sad, angry woman” according to Michigan Supreme Court Chief Justice Clifford Taylor. She, in turn, has little flattering to say about her
Democrat colleagues on the bench. Anyone who thought judges are above such petty—and apparently partisan—bickering, take note: judges can be just as petulant and childish as the attorneys who appear before them. As a profession, we are a long way from Atticus Finch.
Nope, not at all. With the growth of foreclosures, due in part to the rise in nontraditional mortgages, equity stripping, and predatory lending generally, the foreclosure purchaser market is booming!
Over the weekend, The Washington Post added to the multiplying reports on nontraditional (or “exotic”) mortgage lending. The article elaborate on many of the reasons supporting the Minnesota Department of Commerce’s new guidelines on nontraditional mortgages.