Let’s stipulate from the outset: Borrowers must take personal responsibility for debts they incur. A loan accepted is a loan that must be repaid. That said, a loan granted isn’t a license for usury, for exploiting borrowers to the verge
Let’s stipulate from the outset: Borrowers must take personal responsibility for debts they incur. A loan accepted is a loan that must be repaid. That said, a loan granted isn’t a license for usury, for exploiting borrowers to the verge of bankruptcy. Too often, that’s the case with payday lenders and subprime car loan companies.
The St. Louis Post-Dispatch’s Walker Moskop presented several sobering examples last week of cases in which borrowers fell behind on their car loans only to be smothered with exorbitant fees and court-ordered paycheck garnishment to cover charges far out of proportion to the original loan.
Borrowers find themselves inextricably mired in debt because of the skewed advantage subprime lenders have in winning favorable court judgments. This exploitative system amounts to a socially accepted form of loan sharking.
Consider the case of William Lesinski. In 2008, he put down $1,750 to buy a car from Car Credit City. His car loan was for $11,367, with a 29 percent annual interest rate. Lesinski defaulted for various understandable — but not excusable — reasons.
In 2011, Car Credit City’s in-house finance arm, General Credit Acceptance, took Lesinski to court and won a judgment for $15,000, covering the unpaid portion of the loan and attorney fees. Fair enough.
The court allowed the lender to garnish Lesinski’s paycheck, and that’s where the milking began. So far, he has paid out $22,600 in garnished wages, but all of that money has gone to pay off fees and interest. He still owes $13,000 on his original loan.
This shakedown system exploits the poor and makes them perpetual slaves to debt. Reputable lenders don’t operate this way.
We aren’t excusing borrowers who fail to honor their obligations. But it’s clear subprime lenders are preying upon the most vulnerable people in society — people already living on shoestring budgets who are unlikely to qualify for conventional bank loans.
Since 2010, Moskop reports, subprime lenders have filed more than 15,300 lawsuits against borrowers in local courts, typically yielding results similar to Lesinski’s.
Many states don’t allow such exploitation. They ban paycheck garnishment or impose ceilings on interest rates. The GOP-controlled Missouri Legislature too often misconstrues exploitation of the poor as free enterprise at work. It’s entirely possible to tighten laws against predatory lending practices without betraying conservative cause. All it takes is a little compassion.
— St. Louis Post-Dispatch
