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Lending: Preparing "Fringe" Borrowers to Qualify
With all the discussion of predatory lending and unfair or deceptive trade practices, we haven't given much attention to helping customers at the fringe to qualify for loans. Fringe lending involves making loans to individuals with limited qualifications and even problems in their credit history. There are opportunities here for responsible lenders to provide credit and deposit products that help customers to reduce their expenses and credit problems to qualify for better loans.
Fringe borrowers face proportionately heavy costs. When a customer is unable to pull out her credit card and charge the $500 TV, the customer must make alternative and more expensive arrangements to purchase the TV. Both lease-to-own and installment purchasing usually cost more than credit. The $100 down to begin the law-away plan could be used to secure a credit card.
Similarly, payday lending is a very expensive method of borrowing. But overdraft credit, designed for the customer with a small income, can be an efficient, low-cost method of dealing with cash shortages and emergencies just before payday. Meanwhile, electronic deposit of the paycheck (with no holds) and no bounced check fees also improve service and credit history.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 9, 7/02
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