Disentangling the Differences between Abusive and Predatory Lending: Professionals’ Perspectives

Delgadillo, Lucy M.; Erickson, Luke; Piercy, Kathleen W.

doi:10.1111/j.1745-6606.2008.00112.x

Cited by 12 publications

(9 citation statements)

References 5 publications

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“…Predatory practices involve lending based on assets (e.g., home equity) rather than the ability to repay, typically using deceptive terms and tactics that lead to further abuses or fraud and ultimately place borrowers into products that they are ill-equipped to repay, thereby increasing the profits of lenders and financial intermediaries at the expense of homeowners and investors (Delgadillo, Erickson, and Percy 2008; Engel and McCoy 2008; Goldstein 1999; Renuart 2004). …”

Section: Race Space and The Reproduction Of Inequalitymentioning

confidence: 99%

Race, Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse

2015

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In this article, we describe how residential segregation and individual racial disparities generate racialized patterns of subprime lending and lead to financial loss among black borrowers in segregated cities. We conceptualize race as a cumulative disadvantage because of its direct and indirect effects on socioeconomic status at the individual and neighborhood levels, with consequences that reverberate across a borrower's life and between generations. Using Baltimore, Maryland as a case study setting, we combine data from reports filed under the Home Mortgage Disclosure Act with additional loan-level data from mortgage-backed securities. We find that race and neighborhood racial segregation are critical factors explaining black disadvantage across successive stages in the process of lending and foreclosure, controlling for differences in borrower credit scores, income, occupancy status, and loan-to-value ratios. We analyze the cumulative cost of predatory lending to black borrowers in terms of reduced disposable income and lost wealth. We find the cost to be substantial. Black borrowers paid an estimated additional 5 to 11 percent in monthly payments and those that completed foreclosure in the sample lost an excess of $2 million in home equity. These costs were magnified in mostly black neighborhoods and in turn heavily concentrated in communities of color. By elucidating the mechanisms that link black segregation to discrimination we demonstrate how processes of cumulative disadvantage continue to undermine black socioeconomic status in the United States today.

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Section: Race Space and The Reproduction Of Inequalitymentioning

confidence: 99%

Race, Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse

2015

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“…In the majority of cases predatory lenders target subprime borrowers with little prior experience in the credit market (Engel and McCoy, 2002;Delgadillo et al, 2008). They capitalize on these borrowers' limited financial literacy and lack of access to unbiased financial advice (Engel and McCoy, 2002).…”

Section: Predatory Lending: the Mis-selling Of Mortgage Loansmentioning

confidence: 99%

“…This resulted in the rise of thinly capitalized and barely regulated mortgage banks that were not regulated by financial institution regulatory agencies and have relatively little to fear from reputational risk (Engel and McCoy, 2002). Indeed, the majority of cases of predatory lending are said to have occurred among such independent mortgage banks 20 (Delgadillo et al, 2008;Nguyen and Pontell, 2011). Moreover, for mortgage lenders, the increased availability of funds opened up the possibility to serve a new market segment of 'subprime' borrowers who had previously been excluded from the credit market because of credit rationing and discrimination.…”

Section: Perpetrators Motivations and Opportunitiesmentioning

confidence: 99%

Financial Fraud: A Literature Review

Reurink

2018

Journal of Economic Surveys

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This paper describes the empirical universe of financial fraud as it has been documented in the academic literature. Specifically, it describes the different forms of fraudulent behaviour in the context of financial market activities, the prevalence and consequences of such behaviour as identified by previous research, and the economic and market structures that scholars believe facilitate it. To structure the discussion, a conceptual distinction is made between three types of financial fraud: false financial disclosures, financial scams, and financial mis‐selling. The findings of the literature review highlight a number of recent developments that scholars think have facilitated the occurrence of financial fraud, including (1) the development of new fundamental conflicts of interest and perverse incentive structures in the financial industry; (2) an influx of unsophisticated, gullible participants in the financial marketplace; (3) the increasing complexity involved in financial market transactions as a result of rapid technological, legal, and financial innovation and an ever‐widening menu of financial products; (4) an increase in the use of justified secrecy in the form of a mystification of trading models adopted by fund managers.

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“…Predatory lending—the act of lenders using fraudulent, deceptive, or exploitative lending practices through unfair terms with borrowers (Delgadillo, Erickson, and Piercy ; Hill and Kozup )—frequently ignores borrowers' ability to both comprehend terms of lending and pay back loans. Even small‐dollar credit lending practices that provide stop‐gap relief in times of economic need can rely on consumer confusion, misinformation, or cognitive constraints that leave borrowers with less than favorable lending terms.…”

mentioning

confidence: 99%

Small‐Dollar Credit Lending: The Effect of Financial Burden on Personal Asset Misvaluation

Kapitan¹,

Ross²,

Silvera³

2018

Journal of Consumer Affairs

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Small‐dollar credit lenders offer consumers quick access to cash in the form of products, such as pawn loans. The consumers who tend to use these small‐dollar credit products are more likely to face financial burden and potential for default—particularly when loan‐to‐value ratios are high. However, the cognitive effects of financial burden can impair financial decision making. If financial literacy educators are to empower consumers, more consumer‐centric evidence is necessary to determine how small‐dollar credit consumers make decisions when purchasing loans. One critical decision consumers make is accepting how lenders value their assets in exchange for credit. Three lab studies assess how consumers facing financial burden value their own assets. We find that, due to cognitive constraints of financial burden, consumers can undervalue functional assets and overvalue symbolic assets. Importantly for financial literacy efforts, however, we show that framing a symbolic asset in terms of other‐benefit construal helps attenuate asset overvaluation.

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Disentangling the Differences between Abusive and Predatory Lending: Professionals’ Perspectives

Cited by 12 publications

References 5 publications

Race, Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse

Race, Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse

Financial Fraud: A Literature Review

Small‐Dollar Credit Lending: The Effect of Financial Burden on Personal Asset Misvaluation

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