Consumer finance
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Consumer Finance is a term used in large banks for divisions of that bank which consist of stores or offices which primarily sub prime lending and "indirect lending" (for example running the payments financing program of a local furniture store). Both of these are high interest rate items and potentially can make the parent company a lot of money (for example the consumer finance division of Citigroup made 2.2 billion in profits in 2002, while the "normal" consumer bank division made 3.3 billion). Sub prime lending is also contraversial however, and is considered by some to be synonymous with loan sharks.
Controversial practices
Here are some of the controversial practices associated with the industry:
- Failing to tell people who ask for a loan from the sub prime lender that they really have good credit and can get a better deal somewhere else (a subprime loan is usually twice as expensive as a non sub prime)
- Sending live checks through the mail which when used become loans. This can trick some people, and the interest rate is usually purposely high to give the subprime lender a reason to also refinance their mortgage
- Charging very high fees on a mortgage refinance (with the some say dubious excuse that this has to do with the riskier nature of subprime lending), but instead of charging them directly, they finance them into the loan increasing the amount of interest also paid to them.
- Doing refinances that are worse then the previous loan, usually by showing that the new payment will be lower, but not revealing that the new payment does not include taxes and insurance
- Selling single premium credit insurance, also financing that into the loan
Critique
Critics consider the concept and geographical placement of consumer finance stores as a form of "redlining". This is because the sub prime lenders in poorer communities will often be the only local store, yet will be higher priced. Also, the fact that many "normal" banks own these companies seems to show that they are unwilling to provide the services which are considered most beneficial to the community, such as "normal" checking and safe deposit accounts, and instead merely intend to extract money from the community. This is also shown by how many large banks have almost an equal amount of consumer finance stores as they do real branches.