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1.4.1.5 Borrower Desperation

The ease with which a creditor can take unfair advantage can lead to extreme abuse when the consumer also is desperate to borrow money. Without adequate credit regulation, consumers are easily exploited when their financial circumstances require an immediate loan no matter the long-term cost.115 Matters can get even worse where the consumer is unable to repay the high-cost loan and thus is forced to find yet additional high-cost credit to pay off the first loan. This spiral of debt makes consumers even more vulnerable and open to exploitation.

Consumers who are illiterate, uneducated, frail, or less than fluent in English are especially vulnerable.116 Worse, abusive sellers and lenders frequently target borrowers who are perceived as vulnerable, including members of racial groups historically excluded from mainstream credit, on the belief that the borrowers are, in some sense, still a captive market.117

Footnotes

  • 115 {115} See § 7.2.1.3, infra (purpose of usury laws to protect desperate borrowers from overreaching creditors).

  • 116 {116} See, e.g., Martinez v. Freedom Mortgage Team, Inc., 527 F. Supp. 2d 827 (N.D. Ill. 2007) (“Supplying Martinez with the loan contract disclosing the true terms of the agreement in English does nothing to vitiate the fraud, because Martinez was unable to read the contract . . . . ‘[D]isclosing’ the true terms of a document written in a foreign language is tantamount to no disclosure at all.”). Cf. Kristopher Gerardi, Lorenz Goette, & Stephan Meier, Financial Literacy and Subprime Mortgage Delinquency: Evidence from a Survey Matched to Administrative Data 17 (Fed. Reserve Bank of Atlanta, Working Paper No. 2010-10, 2010), available at www8.gsb.columbia.edu (finding that rate of cash-out refinancing increased among subprime borrowers, holding constant for income and education, as basic quantitative literacy declined).

  • 117 {117} See, e.g., McGlawn v. Pa. Human Relations Comm’n, 891 A.2d 757 (Pa. Commw. Ct. 2006) (finding that brokerage firm targeted African Americans through advertising in sources “oriented toward African American audiences”). See generally National Consumer Law Center, Credit Discrimination Ch. 8 (7th ed. 2018), updated at www.nclc.org/library.