Peter Eavis wrote on 3/10/2005: “History shows again and again that lending companies that use punitive tactics don’t do well over time. Two good examples come to mind. First, the old Conseco, which charged insufferably high interest rates on loans for mobile homes. The company filed for bankruptcy in late 2002 primarily because of problems in its lending arm. Second, there was Household International, a huge and often ruthless consumer lender that ended up getting bought by the U.K.’s HSBC Holdings…” Eavis also said “Regulators also dislike negative amortization because it also helps banks mask the true level of bad loans. If borrowers had to make minimum payments that were high enough to actually pay down their balances, many of them would default because the payments would be too high. In the buoyant credit environment of the past seven years, bad loans haven’t been a big problem, but a crunch could be far worse than expected at a lender that has a lot of loans on its books with negative amortization.”
The full article can be seen here and is recommended reading according to Household - HSBC Watch consumer advocates.
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