During these times of financial instability, Americans have learned how difficult it is to obtain loans from traditional lenders. Even those with good credit scores may have trouble obtaining a mortgage with decent terms; those with scores of 660 and below have been pretty much frozen out of the mortgage market.

However, as financial institutions continue their recovery from losses on “bad” loans, some large lenders, including Capital One and GM Financial, are offering credit to those with iffy credit scores. HSBC and JPMorgan Chase are even, once again, wading into the turbulent waters of subprime lending.

According to an article by Jessica Silver-Greenberg in The New York Times, credit card companies distributed over one million new cards to borrowers with damaged credit in December 2011, up 12.3% from December 2010, reports Equifax. These same borrowers made up 23% of new car loans in the fourth quarter of 2011, up from 17% in the same period of 2009, reports Experian, a credit scoring firm.

Jacoby Meyers Bankruptcy Law is concerned that these financial institutions are targeting vulnerable and financially unsophisticated borrowers, who feel compelled to get credit regardless of the cost. This can be a very risky proposition for those who have worked hard to reduce their credit burden by using cash and curtailing spending.

It appears that banks are trying to recoup billions in fees eliminated by regulations enacted after the financial crisis by focusing on two parts of their business, the high and the low ends. Subprime borrowers, those with low credit scores below 660, normally pay the highest interest rates, up to 29%, and often accumulate fees for late payments. Banking regulators are concerned that this kind of lending may indicate a return to the perilous lending atmosphere that contributed to the current recession.
Lenders disagree, saying they have learned their lesson and are targeting “fallen angels,” people who had good payment histories before the terrible economy forced them into less than optimal credit situations.

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, say that as long as lenders adhere to stringent underwriting standards there is nothing inherently dangerous about extending credit to a wider spectrum of people. It is often true that an increase in lending is a sign that the economy is improving, according to many economists. The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but those with the best credit.

Credit card companies extended $12.5 billion in loans to subprime borrowers last year, up 54.7% from 2010, according to Equifax and Moody’s, but still below the $41.6 billion in 2007. And they are increasing their marketing in an attempt to attract more customers, especially those with less-than-stellar credit, according to Synovate, a market research firm. Capital One introduced a credit card that lets these borrowers lower their interest rate after making on-time payments for a year.

Auto loans are another potentially lucrative area for lenders, since they have been all but ignored by new regulations. The new Consumer Financial Protection Bureau has not yet decided whether it will supervise large nonbank auto lenders. A spokesman for GM Financial, an auto lender, said subprime auto loans are expected to continue growing; he stated that auto lenders (unlike mortgage lenders) know how to manage risk while still making loans to borrowers with poor credit.

Although Jacoby Meyers Bankruptcy Law is certainly optimistic about the recovering economy, we urge consumers, regardless of their credit rating, to take it slow. Make sure that you pay your credit card and mortgage/rent on time and keep to you budget (or start one). These simple steps will help ensure financial stability for you and your family. If you have insurmountable debt due to the difficult economy, take control of your future. For experienced and knowledgeable Chapter 7 or Chapter 13 personal bankruptcy assistance, trust the attorneys from Jacoby Meyers Bankruptcy Law; we have helped hundreds of thousands of satisfied clients discharge their overwhelming and debilitating debt. For your free initial consultation, please call 800-260-1402 or log onto our new easy-to-navigate and interactive website at www.jacobymeyersbankruptcy.com.