Predatory Lending - Issues - 2

* Caveat Emptor: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if it seems to make no attempts at deceiving the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has almost a fiduciary duty to advise the borrower as to how to obtain funds more cheaply. Also at issue are certain financial products which appear to only be profitable due to anti-adverse selection, that is a lack of knowledge on the part of the customers relative to the lenders. For example, some people allege that credit insurance would not be profitable to a company if only those customers who had the right "fit" for the product actually bought it (i.e., only those customers who were not able to get the generally cheaper term life insurance).

* Discrimination: Certain groups feel that many financial institutions continue to engage in racial discrimination. Most do not allege that the loan underwriters themselves discriminate, but rather that there is a systemic discrimination. Loan brokers or other types of lending situations where the rate is negotiable or set by the salesman himself, however, have been seen as more ripe for discrimination (and in fact, certain lenders like Honda Auto Finance have had to pay settlements for alleged discrimination of their auto dealers). The discrimination that occurs in this scenario usually thought to be in this way: the loan broker would more often claim that a racial minorities' credit score is lower than it really is, justifying a higher interest rate charged, on the hope that the customer would assume that the lender was right because of an internalized bias that a minority group has a lower economic profile. It is also possible that any broker or loan salesman with some control of the rate charged would simply attempt to charge a race that he dislikes a higher rate. This is seen as being a less likely scenario, although the potential for this occurring causes some to call for the outlawing of interest rates being set by anything but non objective measures.