Almost every day, Americans get new offers for more credit. Many of those who take the bait only go deeper in debt.
It's a vicious circle that has been captured in frightening detail in the documentary Maxed Out. The movie highlights the financial industry's best customers: people who are broke and bankrupt.
In the film, investigative reporter Mike Hudson interviews the mother of a mentally retarded man named John Brown in Aberdeen, Mississippi. John and his family had a low interest government subsidized loan. However, a loan officer convinced the family to get another loan in John's name. Despite John's disability and obvious lack of understanding, he was able to get the loan in his name.
Click play for Charlene Israel's report on predatory lending practices and how you can avoid them.
Hudson asks, "how old is John?" "Forty-four," his mother replies. Hudson continues, "tell me about the loan, you wanted to take care of those credit card bills because you were worried about having enough money to buy food and all that kind of stuff?" The film goes on to explain how the loan officer showed John how to sign his name. Hudson clarifies this during his interview, "showed him where to sign at." John's mother answers, "he copied his name, put it on where she told him to put it at." "That's good and that's just the way he did it at the loan office" said Hudson.
Maxed Out also highlights the story of a bed ridden nursing home patient. She received a credit application for a car loan. Her brother explains, "sister that's in a nursing home gets an offer of credit, pre-selected for auto financing for up to $30,000. She's 35 years old and is in a nursing home, been there 6 years, has no income. The little social security she gets goes to the nursing home." He shares the news with his sister, "you got a piece of mail offering you up to $30,000 so you can go buy you a car." He asks her, "what do you think about that?" She responds, "crazy."
These are just two cases of what critics call predatory lending. Predatory lending is the practice of loaning money to people who have bad credit or no credit history and usually charge a very high interest rate.
Sub-Prime Mortgages Considered Predatory
Experts say sub-prime mortgages fall into the category of predatory lending. The Suisse Group reports that in 2006, almost half of the sub-prime home loans approved went to borrowers with bad or incomplete credit and required no proof of income.
Also in the film, Harvard Professor Liz Warren shared an experience she had while teaching a seminar on bankruptcy for a group of bankers. She told them if they would screen the weakest customers, those overloaded on debt, and those least likely to be able to pay, that they could cut their losses by fifty percent.
She goes on to explain the response she received from one of the bankers, "if you cut out the people who are least likely to be able to repay, if you cut out the most marginal borrowers - the ones who are the deepest in trouble - then you're cutting out the heart of our profits."
Current Financial Crisis Due to Predatory Lending
Ira Rheingold heads the National Association of Consumer Advocates in Washington DC. He says predatory lending practices play a big role in the country's current financial crisis, particularly the current mortgage meltdown.
He adds that the financial industry has taken advantage of consumers, saying, "the consumer was not the customer, the consumer was the commodity that was sold to big Wall Street banks then you could begin to understand why we're where we are today and why so many loans were made to people who simply couldn't afford them."
Consumer Advocacy group Americans for Fairness in Lending offers the following tips to consumers to avoid being a victim of predatory lending:
Shop around for the best rates
Don't be afraid to ask questions
Don't trust ads promising "no credit? no problem."
If it seems too good to be true, it is
And for consumers who have already been taken advantage of, they offer the following advice:
File a complaint with your state consumer protection or banking department
Contact your state Legislator or write your U.S. Congressperson or Senator
Contact a lawyer
A Lot of Wolves Out There
Ira Rheingold adds that consumers should keep in mind, "there are a lot of wolves out there. The folks you're dealing with are not looking out for your best interest, it's sad to say, hopefully someday we'll get past that point and there will be rules and regulations in place so that you don't have to fear that the wolf is around the corner."
Meanwhile, CBN News spoke with Chuck Bentley, Chief Executive Officer of Crown Financial Ministries. In light of all the talk of a slowing economy, he says Crown has a seen a 21 percent increase in call volume and and a 76 percent increase in e-mails since last quarter.
Bentley encourages people to turn to God during tough economic times and gives the following advice:
For Those Facing Foreclosure:
1) Face it with integrity on your knees before God and humbly before your lender
2) Get wise financial counsel
3) Ask for new loan, better terms, lower more affordable payments
4) Sell your house, if you can't sell it, rent it
5) Do a work out/short sell
What To Do If in Financial Trouble:
1) Turn to God for help
2) Ask for His wisdom (this is a point of humility), God will show you a better way - Jeremiah 33:3
3) Trust the Lord
4) Protect your family - put the mistakes behind you, forgive yourselves and each other for the mistakes
5) Don't allow the enemy to give you a new identity - he will tell you that you're a failure, a loser. You are not. You are still a child of God.