Bank of America Sued While Payday Loan Lenders Thrive
by
Rebecca A. Smith
The payday loan industry receives a lot of negative publicity for irresponsible lending practices and high interest rates, but they are not the only lenders in the spotlight. After facing allegations of mortgage fraud, Bank of America, one of the most trusted financial institutions in the country, is being sued by the US Department of Justice for one billion dollars. Bank of America and Countrywide, which Bank of America acquired in 2008, are being called out for fraudulent \’Hustle\’ loans, which were created with the intention of hastening mortgage loan processing without properly checking for qualifications.
The quickened loan process produced thousands of faulty and fraudulent mortgage loans, which were sold to Fannie Mae and Freddie Mac, both of which are government sponsored companies. The Department of Justice, in collaboration with the Attorney General of New York, the Inspector General of the Federal Housing Finance Agency, and a representative of SIGTARP (the Special Inspector General for the Troubled Asset Relief Program), is suing for retribution for the loss of 1 billion dollars and masses of foreclosures that resulted from these defective loans.
Payday loan providers can bear witness to the devastating effects that fraudulent home loans had, and still have, on the economy. With the increase in foreclosures across the country, many families face severely damaged credit, making post-foreclosure life difficult. During these troubling times, many turn to payday loan lenders for financial helpbecause they no longer qualify for traditional loans.
Unlike traditional loans, payday advances do not require a credit check, thus they are often utilized by those with low credit scores. Although these services can provide momentary help, they do not eradicate the problem altogether. Without alternative credit options, many borrowers cyclically rely on payday advances, use loans to cover recurrent monthly expenses, and dig themselves into deeper holes of debt. And the damage done to one\’s credit in a foreclosure situation is not easily undone.
After a foreclosure it takes years to reestablish one\’s credit enough to buy another home. During this time, those who lost their homes often end up renting apartments or houses. Yet, even renting becomes far more complicated with damaged credit, especially when the damage relates to home loans. Often, those who are most in need of a financial break end up renting apartments that require larger down payments or security deposits, as they are the only places that will rent to people with low credit scores. This adds an additional burden on the individual who lost his/her home, leading to more borrowing and less financial security.
Furthermore, a 2011 PEW study relates that payday loan usage is 57% higher for renters than home owners; considering this fact, it is reasonable that the increase in foreclosures in the past half-decade corresponds with increased payday loan usage. Clearly, any bank responsible for providing consumers with faulty or fraudulent loans should be held accountable for their acts; the payday loan industry should not be the only lenders held up to such scrutiny and standards.
The Department of Justice appears to agree. As such, the banks that provided faulty, irresponsible loans, such as Bank of America, are being held accountable; hopefully, with this law suit comes more consumer protection to ensure the security of home buyers and dissuade other banks from making similar mistakes in the future.
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