There was a recent article (on Sept 11, 2006, I believe) in the Wall Street Journal on predatory lending. It was opportune as I was about to have a conversation with a new partner who’s primary charter, I found out, is to actively address this issue in its portfolio of underwritten loans. As I prepared for the call, it got me thinking about how a person is coerced into paying a higher price.
The anwser is that we fear – we all feared as some point.
Take your first credit card application in college: you apply fearing rejection. You wait, hoping, praying that Citibank returns a positive response. After graduation the same held true as you entered a dealership to buy a car. As you approached your first home purchase, you felt almost grateful when the bank/mortgage broker pre-approved you. The truth is that we fear rejection and are so thankful when not rejected that the below-market offer we receive is appreciated instead of negotiated.
The second time you apply for a credit card you understand 23.99% interest compounded is not as much a gift as you thought. So, you create a litany of things for the next card — no annual fee, low interest rate, Mastercard, reward points — and shop for a lender that can deliver plastic that fits your requirements. Once found you contact the 800-number (or go to the website), request and apply to the offer. The only thing missing is the knowledge of whether you qualify and will be approved before applying…hence, the greatly subdued, yet still lingering, fear.
Home loans are much better in this regard because a mortgage lender knows what you will be approved for before you apply, as long as your credit score and other financial stats meet a series of cutoffs. So, why don’t people know this. Actually, some do. Unfortunately not everyone realizes that they have options. The goal in reducing predatory lending is to make consumers aware of their options in a comparative environment. This is one of the applications that the web is ideally suited for. We hope that Centrro can assist in reducing predation of fearful customer by eliminating this information asymmetry. This would allow consumers to explore all options available to them, and be informed, before applying, whether they might or might not be approved for a loan based on their unique profile. The ultimate goal is the elimination of rejection fears for all consumers as they seek out financial products.