This model has been getting kicked around for the past year or so, but in various forms. About 6 months ago, the Congress was looking to allow pay day lenders the ability to skirt customer protection laws in states by running their loans through the larger banks.This would allow them APR’s of 300+%. Still trying to prop up their house of cards and put it on the backs of the American people through debt.
Big Wall Street banks have found a way to continue funneling money to high-risk borrowers — by lending to other institutions who make the so-called subprime loans.
Since the financial crisis, banks have gotten out of the subprime business as regulators have pushed for institutions to lower their risk profiles. One way to continue in the business has been by serving as a third party to the loans.
Banks insist that the loans are safer than direct subprime transactions. Wall Street was burned during the crisis when a wave of high-risk borrowers defaulted and caused securities that bundled the loans together to collapse.
Direct lending to high-risk borrowers has dropped sharply over the years. In the fourth quarter of 2017, mortgages to borrowers with credit scores of less than 620 amounted to $20.4 billion, according to Federal Reserve data. At the peak of the crisis in the first quarter of 2007, that total was $114.6 billion.
Bank executives told the Journal that lending to nonbanks limits their exposure. However, one big recipient of these funds, Exeter Finance, services customers with an average credit score of 570.