Bad All Around

A new report says that consumers and banks were hurt by suspect lending practices.

Bad All Around

A new report from the Center for Responsible Lending says credit card companies that tacked on hidden fees and used vague pricing tactics as a way to get more money from consumers actually ended up hurting themselves. Although most of the price gouging analyzed by the CRL are now illegal, the takeaway - that what is bad for consumers is bad for business - is definitely good news for the little guys of the world.

Among the many findings, the report shows that card issuers that aggressively used unfair lending methods suffered twice as many consumer defaults during the recession than those companies that didn't engage in those practices. Also, and perhaps more importantly, the CRL study refuted the claim by banks and credit card companies that increasing rules would hurt them. Rather, the report notes, "A strategy of maximizing short-term revenue by using unfair, deceptive or abusive lending practices led to higher risk and lower profits during the downturn, undermining a bank’s safety and soundness."

Joshua Frank, a senior researcher at CRL, said that banks have been trying to keep regulators at bay for quite some time. "That same theme comes up [within the financial industry] that when you protect consumers, you harm the bottom line of banks," Frank told The Huffington Post. "We see that regulating industry can actually make the system more stable."

That sounds like common sense to us: A consumer educated about what he or she is getting into is more likely to make sound decisions. Apparently lenders and banks haven't always seen it that way. Perhaps someone should show them this report.

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