I’m beating a dead horse, I know, and I’ve beat this horse in the past. But one of the worst practices that caused the financial crisis (and one of the reasons we are facing such enormous regulatory pressure in our industry today) was lenders selling sub-prime loans to uninformed borrowers who should have gotten prime loans.
The evidence is still leaking out all these years later.
The City of Oakland, which has large populations of poor and minority residents, is suing Wells Fargo, alleging that the bank made high-cost (and thus high-profit) loans to minority borrowers who would otherwise have qualified for a prime loan. Good people ended up paying far more than they should have for a loan, and when the loans exploded, good people lost their homes.
You can say it’s all about the attorneys, but the lawsuit was filed by the City attorney, who stands to gain nothing personally from the suit. (Except maybe some fame, I suppose.)
To be fair, the suit was just filed and the allegations have not been proven. And unfortunately it will never go to trial – Wells Fargo will likely settle the lawsuit as they (and the other big banks) have done with all of these predatory lending suits.
I was asked if writing my book was a labor of love, and I’ve replied “No, it was a labor of being REALLY ticked off!” Despite great efforts by the CFPB, no amount of regulation can protect all consumers from predatory lending. Ultimately only consumer education can do the trick.
The article about the lawsuit is in the San Jose Mercury News, and can be found here.