Chris Farrell
Chris Farrell - 
Listen To The Story


SCOTT JAGOW: This week, Ohio's attorney general said he might file racketeering charges against Wall Street investment banks. He's investigating their role in the subprime mortgage meltdown. The banks poured tons of money into risky mortgages. Then, when things started going bad the banks pulled out, and a lot of subprime lenders were left high and dry. Our economics correspondent Chris Farrell believes the lending culture in this country has changed dramatically.

CHRIS FARRELL: You know what we've seen? Used to be redlining was very common in low-income neighborhoods, African-American neighborhoods, Latino neighborhoods, couldn't get loans. And imagine if you go back four decades ago, and by the way I have NO nostalgia for several decades ago when a wife could not take out a loan unless her husband cosigned it. OK there's nothing to like about that world.

JAGOW: Right.

FARRELL: But the problem is, the level of abuse and how the democratization of credit in low-income neighborhoods is turning into something that makes poverty worse, should give us all pause.

JAGOW: So the pendulum has swung too far the other way.

FARRELL: Too far, that's right.

JAGOW: But why?

FARRELL: Well what has happened is, this is the great frontier. If you think about the credit industry, the lending industry, used to always want to lend to the elite. Then we lend to the middle class. Where's your next frontier? The poor. And the technology of credit scoring and the massive databases of our credit reports allowed for lenders to move into low-income neighborhoods and be more sophisticated, more targeted with their lending. But can I just give you one example of what I'm talking about?

JAGOW: Sure.

FARRELL: BusinessWeek cover story, the business of poverty. So what they note is you have a $30,000-income household, $90,000-income household. Auto loan: 1989 the low-income household paid about 17 percent more than the upper-income household. By 2004, that gap had widened to 56 percent.

JAGOW: So who is going to stop this cycle from happening?

FARRELL: Well this is where I think the regulators have been asleep, especially the federal regulators. I have to applaud a lot of state regulators who have been much more aware of the problem, they've been on the ground. But the federal regulators, you know they seem to be much more concerned about the credit card industry. 'Oh we don't want to interfere, we don't want to interfere with the free market.' And they didn't actually look close enough and they didn't listen to the activists. You know those pesky activists? They didn't listen to them that 'Hey these contracts? These contracts are really bad. There's a lot of abuse going on here.' So I think we need to have, on the federal level, far more aggressive action.

JAGOW: Alright, Chris Farrell, our economics correspondent, thanks.

FARRELL: Thanks a lot.

JAGOW: In Los Angeles, I'm Scott Jagow thanks for listening and have a great day.