Household HSBC Watch

In a lesson plan, designed to teach about predatory and subprime lending, we asked this question of students in 2005: “What is the impact on a country’s economy if predatory lending is left unchecked?” Three years later the answer is clearly obvious. As of today the world has seen over $515 billion (USD) in write-offs and markdowns. Not only was predatory lending unchecked, but it became the mainstream. Predatory lending, which was a big part of the subprime debacle, became the accepted norm. Unfortunately the error was identified too late to stop the damage.

From 2000 to 2002 some sub-prime lenders achieved notoriety as predatory lenders. Public pressure, legal actions, and pressure from shareholders started to change the face of predatory lending. Class action suits, ERISA fraud, public outcry and nationwide settlements impacted the predatory lending sector by 2002. Consumer activists at Household Watch concentrated on the credit card market, while ACORN activists continued to monitor sub-prime and predatory lending.

Both organizations protested the acquisition of Household International by banking giant HSBC.

In December 2000, Providian Financial has agreed to pay $105 million to settle a cluster of classaction suits that accused it of unlawful business practices in its sale of such add-on products as credit protection and credit-line increases to its credit card customers. In response, other questionable lenders did not learn. Insurance packing continued.

In June 2001, with pressure mounting against selling credit insurance in a lump sum up front to unwitting consumers, Household International again made history. The practice, which is costly to borrowers because they pay interest on the insurance as well as the loan, had long been popular with finance companies but had been largely discontinued in recent years. Household stopped doing it in June 2001, becoming the last major lender to scrap the tactic.

Regarding the subprime crisis, we see how insurance packing resumed as an “up-sell” and the practice continues today. The issue simply reiterates the position that predatory lending became subprime, and later became the socially acceptable norm. It was a plan for failure, unabated and unregulated.