The current congressional debate over financial regulatory reform is important to all consumers, but especially unmarried women since they are among the hardest hit by the deception, usury and other predatory lending practices that were a key part of the recent credit crisis. These unethical and sometimes illegal practices helped create a massive credit bubble through the extension of poorly underwritten and unsustainable loans that, in the end, led to massive wealth destruction and the worst economic downturn since the Great Depression.
Even in normal times, women on their own are prone to live on the financial edge. Without the financial advantage of a second income, they often struggle to make ends meet, and have much lower household incomes and wealth and higher unemployment rates than their married counterparts. Then, during the credit bubble, mortgage brokers and lenders disproportionately sold subprime mortgages to women on their own even when they could have qualified for lower-cost loans. Women were 32 percent more likely than men to receive a subprime mortgage, regardless of income and despite women’s better credit scores, and the disparity actually increases as incomes rise.
Due largely to perverse financial incentives that paid lenders and brokers more to sell high-priced, unsustainable loans, consumers were frequently misled and steered into high-cost loan products that they could not afford, even when they could qualify for lower-cost loans. Unfortunately, it is all too common to hear stories of consumers who were convinced or even duped to take out exotic adjustable-rate mortgages, including refinance loans, where payments start low but later increase dramatically. Worse, lenders went after and discriminated against certain groups, including racial and ethnic minorities, low-income households, and single women. Unmarried women were saddled with exorbitant payday loans as well as credit cards with hidden fees, excessive interest rates, and changing terms.
Tapping exceedingly expensive loan products traps borrowers in a cycle of ballooning debt and compounding interest from which they can’t escape. That’s why bankruptcies and foreclosures are hitting unmarried women hard, especially divorced mothers trying to hold on to a middle-class life for their children. As Elizabeth Warren and Amelia Tyagi wrote in The Two-Income Trap, in the 20 years prior to the early 2000s, the bankruptcy rate of single mothers increased 600 percent. Single mothers are more likely than any other group to file for bankruptcy, and they are 50 percent more likely than married parents to file.
What’s more, the gap between single mothers and others is only increasing. These are middle-class women who went to college, had good jobs, and owned homes, but their American dreams too often came crashing down.
This perfect storm of low incomes, increasing debt, deregulation, predatory lenders, and a national recession is the reason for today’s national wake-up call for reform of the financial regulatory structure that failed to prevent such a catastrophe. Policymakers are now discussing ways to reform financial regulation and—hopefully—protect consumers and provide long-term stability to the national economic system.
The most important proposal for unmarried women is the creation of a federal Consumer Financial Protection Agency, which would aim to prevent predatory lending and the targeting of vulnerable borrowers, among them unmarried women, by overseeing banking and other financial products sold to consumers. The objectives of the new watchdog agency would include “ensuring that consumers have and understand information to make decisions about consumer financial products and services; that consumers are protected from abuse; [and] that markets for consumer products and services operate fairly and efficiently.”
It is crucial that unmarried women and other consumers keep an eye on Congress’s work and ensure that it gives the new CFPA broad oversight with few exceptions for products or lenders, enforcement tools with teeth, and adequate staff and funding.
Several other proposals for reform of financial laws and regulations are also under consideration, including expediting the implementation of the Credit Card Act of 2009, which aims to rein in credit card companies, establish government regulation of financial derivatives, and protect the interests of pension funds and other institutional and retail investors. These proposals should help stabilize the national economy in the long term.
Today’s Great Recession has kicked millions out of work, out of their homes, and off their health insurance. It has decimated savings and threatens the short- and long-term economic security of families throughout the nation.
Women on their own have good reason to be concerned about the state of financial regulation and to support reform and oversight. Nothing less than their own and their families’ future is at stake.
Liz Weiss is a Policy Analyst with the Center for American Progress. She focuses on the economic security of unmarried women.
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