Predatory Practices in the Business World
Carisue M. Clancy
Southern New Hampshire University
May 25, 2014
I like to believe that people are basically good, but there are those that like to prey on the less fortunate or the naïve. Predatory people or organizations are eager to gain something out of someone else’s weakness or suffering. In the business world, these “predators” can take the form of those that the general public is supposed to be able to trust. Banks, finance companies, contractors, and any others that enter into contracts with consumers are generally to blame for this type of behavior. This behavior can come in many ...view middle of the document...
d.). This type of lending usually includes payday loans, title loans, subprime credit cards, etc. These are typically loans backed by some form of collateral, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property. These loans involve “lower loan amounts; higher origination costs, broker’s fees, credit insurance fees; collateral pledges; large prepayment penalties and faster repayment penalties” (Twomey pg. 654).
The subprime lending market makes loans to consumers who have bankruptcies, no credit history, low-to-moderate incomes and a poor credit history. Just this year, the Consumer Financial Protection Bureau filed suit against ITT Educational Services Inc. for predatory student lending. The CFPB alleges “that ITT exploited students and pushed them into high-cost private student loans that were likely to end in default” (CFPB Sues…, 2/14). For profit colleges like ITT, benefit when students take out a large amount of loans, no matter whether the students succeed or not. When students’ federal loans do not cover the cost of tuition, they look for private loan funding. The CFPB alleges that “ITT encouraged these students to enroll at ITT by providing funding for this tuition gap with a zero-interest loan called, “Temporary Credit””(CFPB, 2/14). This loan had to be paid by the end of their first year and ITT knew most students wouldn’t be able to do this. So, ITT pushed the students to pay this “Temporary Credit” by taking out high cost private student loans. But these students were “kept in the dark that taking out these loans would be required to continue their studies”(CFPB). ITT did not give these students a fair opportunity to understand these loan obligations. In some cases the students didn’t even know they had private loans until they received calls from a collection agency. ITT did this knowing that the projected default rate on these loans is 64% (CFPB). This can have bad consequences for these students such as not being able to get any other type of loan in the future or even affect job prospects. A student’s credit score could be ruined and they may spend a good portion of their adult life trying to correct this.
Another market affected by subprime lending is the housing market and mortgages. The fact that the homeowner does NOT benefit is what turns a legal mortgage into a predatory lending practice. The targets for these types of subprime mortgages are the elderly, low income, or...