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Lending in America: Predatory Practices Persist

Wednesday, December 12, 2012

In the first report of its kind, the Center for Responsible Lending examines consumer lending markets across-the-board and finds that—despite major gains in regulatory reforms—predatory lending continues to undermine American households trying to rebuild their finances after the recession.

View or download the report:

The State of Lending in America and its Impact on U.S. Households (State of Lending) paints a picture of working families struggling to manage debt while coping with stagnant incomes and a substantial decrease in wealth. The report covers major CRL findings in recent years and incorporates pertinent research from sources such as the Federal Reserve Board, the Pew Research Center and the Consumer Financial Protection Bureau.

The ability for households to obtain credit on affordable terms is key to the nation's financial recovery, but too many families remain at high risk of abusive lending practices. The foreclosure crisis and resulting economic downturn have turned back the clock on previous wealth gains, especially in communities of color. In fact, the housing crisis has produced the largest documented wealth gap ever between white households and families of color.

State of Lending is a series of three reports. The first, released today, gives an in-depth view of U.S. households' income, spending, debt, and wealth. It also outlines predatory practices in mortgage lending, credit cards, student loans, and auto loans that undercut the benefits of these products.

The report shows that consumers are better off because of stronger protections on mortgages and credit cards. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which incorporated a number of previous state initiatives to curb abusive mortgage practices, has ended many of the worst practices of the subprime era. And, contrary to industry predictions, the cost of borrowing on credit cards has not increased since the CARD Act passed; transparency has greatly increased and the use of hidden fees has gone down.

Even with that progress, policymakers have much work ahead. Many harmful lending practices persist, and much financial damage from the mortgage meltdown has not been addressed. For example,

  • the "spillover" cost of foreclosures has wiped out nearly $2 trillion in family wealth;
  • auto loan interest-rate markups cost consumers nearly $26 billion each year; and
  • borrowers in lower credit tiers pay up to 68% higher monthly payments on private student loans than on safer federal loans.

The report includes new or updated data related to mortgage and car lending: Foreclosures and delinquencies by race and ethnicity, individual state data on the "spillover" costs of foreclosures, and individual state data on auto dealer markups.

Former Federal Deposit Insurance Corporation chair Sheila Bair authored State of Lending's foreword, noting that predatory lending harms the entire U.S. economy. She warns, "If abusive lending practices are not reformed, we again will all pay dearly." The report identifies regulatory and legislative actions that can halt today's predatory lending practices, prevent the rise of new abuses, and preserve access to fair, affordable credit.

The next two State of Lending reports will be released in early 2013. The next report will cover payday loans and other financial products that trap people in long-term debt while portraying themselves as short-term solutions. The third and final report will examine abusive practices in debt collection and servicing, and conclude with a chapter documenting how lending abuses often target the same households and have a cumulative—and particularly disastrous—impact on low-income households and communities of color.

For more information: Kathleen Day at (202) 349-1871 or; or Ginna Green at (510) 379-5513 or