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Originally, the lending institutions who evaluated the relative risk (of

nonpayment) associated with extending credit to individual consumers had a vested

interest in doing so accurately because the consequences on nonpayment were primarily

their financial risk to bear. From their perspective, the optimal situation was to extend

credit and then receive extended payments that included a premium for financing fees but
to limit the relative risk of default by refusing credit to unqualified applicants whose

likelihood of eventually paying in full was too uncertain to rely on

In the late part of the 20th century, a practice of predatory lending evolved,

whereby credit issuers purposely targeted low-income consumers with relatively good

statistical likelihood of continuing to pay over the long term (based on other factors such

as age and length of employment) but low probability of paying much more than the

financing fees on particular loans (Markels 2007). In typical cases of this nature,

low income consumers purchased every day goods such as household appliances and

furniture and eventually paid so much in finance fees that the principal loan itself

remained unsatisfied for many years. As a result, they ended up paying the lender many

times the actual purchase

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