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The issue is that you are using your customer deposits to make the loans. When the loans default and they aren't paying a high interest rate to compensate you f
by phdp 11y ago
The issue is that you are using your customer deposits to make the loans. When the loans default and they aren't paying a high interest rate to compensate you for the higher default rates, you don't have the money to redeem those deposits at face value, and then the NCUSIF (FDIC for credit unions) will have to step it. The regulators would rather prevent that in the first place.
- Jtsummers 11y agoRight, I understand why they couldn't make the loans (regulators not allowing it). But if someone were to establish themselves in a way that could make the sorts of loans this credit union wanted to, they wouldnot be predatory. > If you are making loans to high risk clients, this is predatory lending. What I was specifically replying to. High risk loans are not predatory loans. Predatory loans are high risk, high interest, unfavorable terms (short repayment periods, high-value collateral for low-value loans, aggressive collection tactics, etc.). We have to be clear when we talk about a topic to not mix the terms in a way that skews our discussion from the actual circumstances. That way lies miscommunication and misrepresentation of those involved.
- easytiger 11y agoA bank has to be self sustaining, its deposits must cover portions of its debts. It can't work if it is based on the changeable altruism of an individual. As actually even happened in this case, hewasn't prepared to endlessly indemnify the loans, which is something he could do as a private lender.