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The next time a politician tells you…

Loan sharks…that high-interest loan companies in North Carolina “haven’t had a rate increase in 30 years”  tell him/her that this statement is, in a word, baloney (and feel free to use a stronger word).

#1: Inflation for lenders is accounted for through the issuance of larger and larger loans, not higher and higher interest rates. As with home and car loans, the average finance company loan in North Carolina 30 years ago was much smaller than it is today. It is simply absurd to even imply that lenders must receive periodic interest rate hikes in order to make money.

#2: North Carolina lenders have, in fact, been given authorization on multiple occasions in recent decades to charge new loan fees that have the same effect as higher interest rates.

#3- Interest rates are currently at near all-time lows. In the early 1980’s, the prime rate (the cost that large lending institutions must pay to borrow money) was over 10% and sometimes more than 20%!  Today, the prime rate is 3.25%. For an intelligent elected official to claim that a profitable industry that made money then, can’t make money now by lending at rates as high as 30% (and really, the rates are more like 45% or 50% when you add in the fees) is simply astounding and an insult to the intelligence of all North Carolinians.

7 Comments

  1. Doug

    May 3, 2013 at 9:17 am

    On the surface yes the politicos are BS’ing you if they say there is no raise. But in reality the finance companies must get paid for their risk…otherwise as the free market works they go out of business because they cannot lend at a rate to cover those subprime loans, thus denying one more avenue for those people to borrow. As we have seen when the government gets involved by requiring loans to sub par credit risks at low rates it is a recipe for disaster for all.

    Want an example….the Feds required loans to risky credits via laws such as the community reinvestment act which generated a lot of sub prime mortgages. You don’t have to be a rocket scientist to be able to deduce where that got us….a hint to you regressives on this site: the credit bubble of 2008 and the current Great Recession. See the seeds for the bubble were sewn in the Clinton years, not the Bush years as you liboweenies like to screech. As jlp so finely related to us…these things take time to build up:
    jlp75
    April 1, 2013 at 6:46 pm
    “There is not enough information to determine if we are on the “right path”. Many decisions good or bad take years or even decades to take significant effect.”

  2. gregflynn

    May 3, 2013 at 9:30 am

    You really are being an obnoxious troll when you repeatedly repost the same phrase of another user out of context.

  3. Doug

    May 3, 2013 at 2:56 pm

    greg,
    It was quite in context, maybe I need to connect the dots to you. We got the long term result of the failed path of relaxing lending requirements and not letting the financial companies set their own standards for lending to poor credit risks. Applied to the blog post…..let the lenders charge for what the market will bear, they are the one’s who are having to live with the distressed credit crowd.

  4. gregflynn

    May 3, 2013 at 5:13 pm

    You have repeatedly reposted that quote from jlp75. That’s abusive spam. The original context was McCrory’s first few months in office. You keep taking it out of that context. Please stop it.

    Lenders were making a ton of money before the bubble burst. The government didn’t force them to chase all those loans and repackage the risk. Mortgage companies were not covered by the CRA. Banks were largely ignoring the requirements to make loans consistent with the sources of their deposits, hence the title “Community Reinvestment”. I helped start a community bank to reverse that trend. It was successful in its goals and profitable, helping to start and grow many small businesses. I don’t need lessons in finance from a rude and presumptuous partisan troll.

  5. jlp75

    May 3, 2013 at 8:16 pm

    I feel honored go be quoted. Unfortunately it is quite out of context as Greg says. This was in response to Doug’s assertion that McCrory has us on the right track. Kind of hard to make that call when he has only been in office for a few months. Not to mention I don’t even know where the guy is as I haven’t heard much from him. It is funny how you guys criticize Obama for playing golf when you guys are backing absentee McCrory. It has been fairly quite at the governors office. I guess he figures if he avoids going on the record for anything his approval rating will stay high. I personally would rather have a governor who at least stood for something even if I didn’t agree with him.

    As for the Bush years I think we have had enough time to make a call on that disaster. As George himself says history will decide his legacy. The news is in George, you were a failure. I have no doubt that when future civilizations study the decline of our nation they will look at the Bush years long and hard. Surely Doug as a CPA you have sense enough to know that cutting revenue and drastically increasing expenses, as Bush and the Republican Congress did, is a recipe for bankruptcy. Then again as a wise finance professor of mine once said, “accountants are merely librarians of historical data”. This could explain your lack of analytical skills.

  6. Doug

    May 6, 2013 at 10:16 am

    greg,
    The context was that some things take time. I guess it will take some time for that to reach your noggin. I will continue to post that quote as it is quite applicable at times when the post is only looking at the short term vs. long term effects.

  7. Doug

    May 6, 2013 at 10:26 am

    jlp,
    The recession had the seeds planted in the late 1990’s with the relaxation of lending standards…the CRA and such. It only came to bear in the Bush years because the bubble was large enough to burst. Bush had his bad points such as the no child left behind thing and the failed prescription drug law…but the financial crisis was begun well before he was in office.

    Let’s see…107th congress pretty much split 50-50, 108th congress pretty much the same thing, 109th congress still have a fillibuster margin that dems can control, 110th congress back to 50-50 dems control house. Your premise does not hold water. Your beloved dem party has just as much skin in the game over the past 15 years as the Republicans. We are in a 50-50 split country all that time. Just accept that all Bush did….the dems accepted as they had the same power of gridlock as teh Republicans currenly are exercising.