BANKRUPTCY UPDATES

• Minnesota Distillery of Fine Vodkas Files Chapter 7 Bankruptcy (February 10, 2012)
• Court Approves Newspaper Magnate Lee Enterprises’ Bankruptcy Plan (February 07, 2012)
• Suspected Felon Filed for Bankruptcy Shortly Before Untimely Death (February 09, 2012)
• Ireland Overhauls Bankruptcy Laws (February 06, 2012)
• IL State Representative Files for Chapter 13 Bankruptcy (February 08, 2012)

Filing Bankruptcy News: Not Enough Outrage Caused by Payday Lending

A recent BusinessWeek.com article detailed the horrors of the micro-lending industry that's begun to flourish in Mexico. The article exposes the high interest rates charged to borrowers who are already struggling financially and the disastrous effects debt can have on families.

If you're thinking this story rings a bell, you're not alone.

The Mexican micro-lending denounced by BusinessWeek.com shares many characteristics with payday lending as it's practiced in the United States. That's right: the scary truth is that highly exploitative lending techniques are being practiced right here at home.

While the Mexican economy is very different from that of the United States, the relative borrowing capability of its citizens is roughly the same: it's easier for rich people to qualify for loans than it is for poor people.

And lenders have learned to profit from the ironic truth that poor people have fewer credit options than rich people, and so will pay higher interest rates for the privilege of borrowing money.

In Mexico, Banco Azteca reportedly lends money in small amounts-at an average rate of $257 per loan. In the United States, Payday lenders are doing the same thing-lending a few hundred dollars at a time to financially struggling families who have few if any other credit options.

And in both countries, the lenders are finding this practice hugely profitable. Take a look at some of the common micro-lending techniques used in Mexico and the United States:

Even with consumer protections like personal bankruptcy and Welfare available in the United States, many families are finding themselves overwhelmed by debt incurred from payday lenders.

And, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) passed in 2005, qualifying for Chapter 7 bankruptcy - which allows debtors to discharge much unsecured debt- is now more difficult than ever.

The BusinessWeek.com article notes that some Mexican lenders offer their employees bonuses if they convince borrowers to take out more expensive loans. This practice was common during the heyday of subprime mortgage lending, when many lenders convinced borrowers who qualified for prime loans to enter more expensive subprime agreements.

Micro-lending was once considered a non-profit tool for economic development. Today, lenders in the United States and elsewhere are making fortunes by preying on poor borrowers with few choices for obtaining credit.

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