Banks Try to Lend to Subprime Borrowers
As federal and state legislators ponder possible legislation to deal with a spate of mortgage foreclosures attributed to an explosion of risky subprime lending in recent years, some say a new issue could be developing. As the housing market stagnates, prices, in many areas throughout the U.S., are sliding, and homeowners are struggling to pay their bills, lenders reportedly are now seeking to market credit cards to subprime borrowers.
While it is counterintuitive that lenders are trying to get customers already struggling with debt to sign on the dotted line for unsecured loans, direct mail solicitations by credit card issuers targeted at subprime borrowers are up 41 percent in the first half of 2007, compared to the same period in 2006, reports the Boston Globe. Solicitations to those with good credit are down 13 percent. Apparently, credit card issuers are looking at the short-term, and seeing prospective customers, rather than worrying about potential repayment issues down the road, according to Globe article.
“This causes us great concern that some major credit card issuers are marketing to people who are in a risky financial position,” says Travis Plunkett, the Consumer Federation of America’s legislative director. “It’s another sign that some credit card issuers are engaging in risky, irresponsible lending to vulnerable consumers.”