Sunday, July 4, 2010

4: Can Credit Consumers Survive the Credit Reporting Industry? Blog 4

(This is the fourth in a series of blogs about credit and credit reporting in the United States.
The monthlynotesstaff intends to publish this series as a book. Book publishers, agents, and investors are encouraged to contact us to help secure funding for this project. Consider this to be material under copyright.)

What is Subprime Credit?

The credit reporting industry has grown enormously since Cator and Gary Woolford first published their "Merchants to Retailers in Atlanta, GA" in 1899. Computerization brought an alarming amplification of computer-linked data collection, collection letters, and files.

In 1901 the Woolford brothers extended their retail reporting business from reporting on local customers to Atlanta, GA retail stores to background check and reporting to insurance agencies. Did the Woolford brothers anticipate that the concept of "high risk" insurance, that is, higher dollar amount premium amounts required for negatively-reported "high risk" insureds would be intercalated into the credit reporting, banking, and lending industries?

Did the Woolford brothers project the collateral growth of numerous credit rating analyses and risk scale businesses? Or the phenomenal growth of what is now known as the "subprime" credit market?

By definition, subprime credit discriminates against a group of credit consumers. It allows lenders to feel justified charging the subprime consumer more for money than the "good" or "excellent" consumer. The reason for the negative credit rating relegating the consumer to the subprime category could be no previous credit, too much previous credit, too much used credit, or the constellation of other factors used to create "fair" or "poor" credit rating categories.

There are numerous credit rating scales for credit categories. "Bad credit" is what could happen with actual consumer credit bloopers. Or it could happen because of excessive and repetitive bill collecting, creating the illusion of unpaid but virtual or pretend accounts from virtual creditors from whom a consumer has never borrowed money or received merchandise or services.

The reason is less convincing to the subprime customer who already has been victimized by a credit reporting circuit which disseminates unannotated and uncorrected consumer-disputed or repetitive entries. The subprime consumer nonetheless must pay more interest and finance charges for credit money. Subprime credit subjects the subprime consumer to more expense and worry in efforts to pay the principal plus exorbitant amounts of finance charges.

From a psychological perspective, this is "blaming the victim" and subjects the credit consumer to more harm. This aggressive behavior is used by the credit reporting, rating, collecting, and lending complex to drive profit while making the subprime consumer feel guilty for his or her role in their own circumstances, and so less likely to complain or try to regulate or otherwise prevent this enormous industry from financially ruining the credit consumer.

(See for the fifth in the series "Can Credit Consumers Survive the Credit Reporting Industry?") Contact or for an email or to comment.