Predatory Lending - Issues

There are many underlying issues in the predatory lending debate on which there are many viewpoints:

* Risk Based Pricing: The first issue is to whether risk based pricing is fair in and of itself. Risk based pricing is the universal practice of the bond markets and the insurance industry, and is implied in the stock market and in many other industries. The basic idea is that those who are more likely to default, or are deemed more risky, should pay more interest to avoid the tragedy of the commons, to avoid unfairly punishing those who have never defaulted and never will. This might be the reverse way of looking at it though, risk based pricing can also be seen as a way for a lender to lend to a group they never have been able to previously, whereby the higher charge allows them to not lose money based on the higher than normal default rate. There is some debate as to whether this concept is fair. There is also some who, while agreeing that the rates are generally set fairly relative to the risk the lender assumes, feel that it is not good to allow borrowers with credit problems to take out such a loan.

* Competition: Some of those who believe risk based pricing is fair, nevertheless feel that many loans which they deem predatory charge prices far above the risk, using the risk as an excuse to overcharge. Others counter that competition would reduce this possibility. These criticisms may be applied to certain products and not others.

* Financial Education: Many observers feel that competition in the markets served by what critics describe as "predatory lenders" is not affected by price because the targeted consumers are completely uneducated about the time value of money and the concept of APR, a different measure of price than what many are used to.