Wednesday, January 13, 2010, AM | 1 Comment
The report about protection from bad credit reports has finally come out after a long wait of 6 years when the U.S. Congress mandated it in 2003. It is a collaboration between Federal Trade Commission and the Federal Reserve. It will affect mortgage and all other loan applicants and home purchasers. Good news for everyone – finally.
News media have reported that…
In late December 2009, the two agencies published regulations designed to safeguard loan applicants from needless overcharges on interest rates caused by erroneous or outdated information in their national credit bureau files.
A little background
A phenomenon known as Risk-based pricing is tied to credit scores when folks apply for home mortgages, credit cards, auto loans and most other financial products offered to the public. Risk-based pricing basically says that anyone with a high risk of paying back the loan will get loan with higher interest rate than someone with less risk. It so happened that it was a standard practice among the lenders across the board.
The Shylock effect
I call it the Shylock effect, except that instead of slow death by cutting off a piece of body flesh, the lenders in modern times suffocated their victims, financially and otherwise, by tightening their grip on the victims’ major financial organs.
Of course, we all know Shylock is a fictional character in Shakespeare’s The Merchant of Venice. The suffocation in this century and last has been real. The Shylock effect has spread across the board. Risk-based pricing essentially created the sub-prime debacle based on one thing and one thing only – greedThe net effect of the new rules
The rules require lenders to alert consumers whenever derogatory credit data cause them to be charged higher rates, higher down payments or less than optimal terms on a “risk-based pricing” system.
Moral of the story
The lenders in real life and not in fiction have been screwing the innocent victims long enough. It was about time somebody did something to stop their suffocation of innocent and needy folks.
My friend from the 60s says: “Any law has two parts to it. One is written on a piece of paper, the other is when you implement it.” I guess we just have to wait and see.
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