Traditionally, credit markets have thrived when both the lender and the borrower benefit. As Richard Cordray, director of the Consumer Financial Protection Bureau, or CFPB, recently stated, “In a healthy credit market, both the borrower and the lender succeed when the transaction succeeds—the borrower meets his or her need and the lender gets repaid.”
But for decades now, a certain category of lender has profited not despite borrower failure but because of it. From subprime mortgage and credit card purveyors to payday and auto title lenders, credit models that make money off of late fees, serial loans, and repossession of collateral have proliferated. Some banks and other financial institutions deliberately make loans that borrowers will be unlikely to repay, load excessive fees onto products that appear otherwise affordable, and offer products that encourage default rather than repayment.
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