Subprime Lending News 8/9/17:
Student borrowers get their day in court, Uber drops subprime leasing program and Atlanta’s housing market’s still on the mend.
By Caroline Thompson
Why Uber is ending a popular subprime leasing program, how Colorado got payday reform wrong, and even more subprime news for your Wednesday afternoon.
Navient denied motion to dismiss borrower fraud lawsuit.
Student loan giant Navient is being sued by the Consumer Financial Protection Bureau and the attorney generals of both Washington state and Illinois for misleading and mistreating hundreds of thousands of student debtors. Navient tried to get the lawsuits thrown out of court on the basis that all of its practices complied with the Higher Education Act and Department of Education regulations, but a U.S. District Judge dismissed this claim on Friday, writing that Navient’s contract with the government didn’t “relieve the company of its obligation to not commit unfair, deceptive or abusive acts in violation of the Consumer Financial Protection Act.”
Navient must now stand trial for its alleged illegal practice of steering borrowers into high-interest payment plans and away from federal programs that cap payments based on income and, in some cases, offer loan forgiveness.
Uber moves to abandon subprime leasing division as losses skyrocket.
In 2015, Uber started Xchange Leasing, a program which offers subprime car leases to Uber drivers whose credit was too low to qualify for traditional car loans and leases. The program was intended to solve a major problem for Uber: many otherwise qualified Uber drivers owned cars that didn’t meet driving standards, so Xchange was a way for those drivers to gain access to a new car they could use for work. Originally, Uber expected to lose about $500 per car, but a recent report has shown that the ride-sharing company is actually losing about $9,000 per car, 18 times more than expected. As a result of these massive losses, Uber has announced it will be shuttering or selling off most of Xchange’s business by the end of the year. Around 500 jobs could be affected.
Colorado payday loan reform makes loans cheaper, but still predatory.
In 2015, Coloradans paid more than $50 million in payday loan fees, despite a 2010 attempt by legislators to restrict the cost of loans and extend repayment terms to six months. This data comes from a recent report from the Center for Responsible Lending, which said that while payday loans are often marketed as short term, emergency solutions, for many borrowers, they lead to a cycle of debt that’s nearly impossible to escape.
“This is what payday lenders count on,” said Ellen Harnick, a representative for the Center for Responsible Lending. “They’re looking not for the borrower who’s going to come in, borrow for a few weeks or a month and pay it off and never come back. They’re looking for people who are going to keep renewing these loans, and keep paying on these loans.”
The report also found that Colorado payday lenders overwhelmingly prey on poor communities, especially communities of color.
Atlanta’s housing market has yet to recover from the subprime mortgage blowout.
Ten years after the subprime mortgage crisis, home prices in Atlanta are still struggling to recover. According to a report from Forbes, home prices in the city fell forty percent and more during that time, and buyers looking to invest in the Atlanta housing market need to proceed with caution, even now. The Forbes report suggests buyers look at two important factors when deciding whether or not to invest in real estate on a county-by-county basis: the price-to-rent ratio, which shoes the risk of investing, and the job growth rate, which may suggest future demand for housing.