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Friday, December 08, 2006

A step in the right direction

Posted by: Hammer / 8:26 AM

Lori Swanson is off to a good start:

In her first policy initiative since being elected state attorney general last month, Lori Swanson called Thursday for tougher laws against abusive home mortgage practices known as predatory lending.

A sharp spike in mortgage foreclosures -- more than 2,000 in Minneapolis and St. Paul alone this year -- suggests that many homeowners, especially those with poor credit who resort to subprime lenders, are being conned by "exotic" and deceptive mortgage pitches, Swanson said.

I understand that high-risk borrowers are going to face higher lending costs. I understand that if you try too hard to protect high-risk, low-income borrowers legitimate lenders will leave the market. So there has to be a balance.

On the other hand, the great American theme is that the merit matters. That any person willing to work hard can get ahead. But you can't get to the house on the hill without a mortgage. You can't get the mortgage without good credit. And it's hard to develop good credit when you pay a 2-10% tax for not having a bank in your neighborhood:

But consumer activists see something else lurking behind the expansion and the new, scrubbed images: old fashioned exploitation and price-gouging.

"I view these places as parasites," said Frank Trinity, a staff attorney with the Legal Clinic for the Homeless in Washington, D.C.

Check-cashing outlets used by Trinity's clients generally charge fees of 2 percent to 10 percent to cash a check.

By way of comparison, Cash America touts its technology to potential franchisees. The company claims:

How do I know the checks I will cash are good?
Mr. Payroll has developed a proprietary system to control losses from bad checks. There is always some risk involved but the proprietary system we employ, when used properly, will minimize losses from bad checks to less than one out of a 1,000.

Let's see -- you collect a fee of 2 to 10% of every check you cash. Less than 1 in 1,000 checks bounce. Cash American/Mr. Payroll is doing great. It's the great American theme that's suffering.


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