by Wilt Alston: “Given all the press that ‘predatory lending’ has gotten recently, in light of the fact that legislation � specifically laws like the Community Reinvestment Act � resulted in many of the supposedly sub-prime mortgages and given that the percentage of people receiving these loans who were black, the issue interests me. The pejorative term “predatory lending” and how such scary descriptions are used to justify statist protection of black folk also sparked my interest.
According to the more-than-occasionally-correct Wikipedia: Predatory lending is a pejorative term used to describe practices of some lenders. There are no legal definitions in the United States for predatory lending, though there are laws against many of the specific practices commonly identified as predatory, and various federal agencies use the term as a catch-all term for many specific illegal activities in the loan industry.
One less contentious definition of the term is ‘the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against.’ . . .
I have no real dispute with much of this. What troubles me, however, is the presumption that the State must protect certain people from taking out a loan that they themselves are seeking in the first place! I rather think predatory lending is when the taxpayer lends the government money to finance the clean-up of a malady that government policy caused. (Actually, in that case lending is a bogus description. That scenario sounds more like theft.)
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While the [Community Reinvestment Act] (and related statist meddling) did result in many people, some of them minorities, obtaining mortgages for which they otherwise could not have qualified, the meltdown included a bunch of homes bought by people who were not the target of the government’s market meddling. Ain’t that always the case? The State starts passing out free lunches and people who aren’t really hungry get to eat too. . . . Everyone pays for it.
. . . People who bought more home than they could afford, or with a much lower down payment than a truly free market would likely have warranted, are just as much to blame as speculators for the mortgage meltdown. However, both they and the speculators simply responded to incentives as any Austrian [economist] worth his salt would predict. . . . When the government seeks to circumvent the market with noble goals financed with other people’s money, the result is always a trail of tears. . . .
So-called predatory lending practices cannot bring the market to foreclosure. Economically, this is specious, nearing idiotic, political rhetoric. If a bank preys on people who cannot pay by, for instance, originating loans to them at higher-than-reasonable rates or with unfavorable terms, only one of two outcomes is possible. One, those people will pay that interest, making the bank a healthy profit. Two, those people will not be able to pay and the bank will lose money. In the case of outcome one, other banks will seek to woo those customers to them, and (you guessed it) competition will drive the loan rates, and the related components of the loan packages in a direction that benefits the people seeking the loans. . . .
Even a “predatory lender” can’t make money when people fail to perform. . . . Without [government] guarantees, banks have to take care of business while they take care of the prospective borrower. Ergo, so-called predatory lending is primarily a result of way too much government involvement in the lending market, plain and simple.” (Read more from campaignforliberty.com)