Uhm, I don't think that outcome is a bad thing at all. There should be very few and ideally no reasons you have to go into debt, except for high-value long-term purchases. And these are typically things that can sever as collateral (think houses, cars). Heck even computers and phones nowadays have significant resell value.

Come to think of it, except for medical bills, I really don't know what an uncollateralized loan would be for and which I'd consider a net-positive. And before you come back to me with medical bills: Fix your health insurance system and that problem goes away...

Propose a penalty that is sufficient to deter unscrupulous behavior but not so excessive as to cause lenders to flee the market entirely. If the penalty can be considered the cost of doing business, it is ineffective for its purpose. This is no different than applying KYC and a customer identification program to lending operations.

> Propose a penalty that is sufficient to deter unscrupulous behavior but not so excessive as to cause lenders to flee the market entirely

Treat it as you suggest: a KYC/AML failure. Public reporting requirements. Liability to the injured (for actual damages). And, if a pattern emerges, license restriction and eventually revocation.

A $1mm mandatory penalty will force lenders to settle. (Nobody will spend $100k proving they properly made a $25k loan with a $1mm penalty if they’re wrong or unconvincing.) When customers know that, you get adverse selection. That would shut down the market.

I concede that this is an excellent start to resolving the overarching issue, and prefer the revocation of licensing for repeat offenders versus potentially unreasonable (depending on size of the org) monetary penalties. Appreciate you pointing out my suboptimal initial proposal to solve the problem. I had the usual suspects on my mind when writing that comment (too big to fail finance who buys their way out of every single attempt at accountability). Thank you.