Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.
Predatory lenders typically target minorities, the poor, the elderly and the less educated. They also prey on people who need immediate cash for emergencies such as paying medical bills, making a home repair or car payment. These lenders also target borrowers with credit problems or people who recently lost their jobs. This could disqualify them from conventional loans or lines of credit, even though they have substantial equity in their homes.
Predatory Lending Practices
While there is some dispute about what constitutes a predatory lending practice, a number of actions are often cited as such — including a failure to disclose information or disclosing false information, risk-based pricing and inflated charges and fees. There are other predatory practices such as loan packing, loan flipping, asset-based lending and reverse redlining.
These practices, either individually or in concert with each other, create a cycle of debt that causes severe financial hardship on families and individuals.
Protecting Yourself Against Predatory Lenders
The best defense against predatory lenders lies in educating yourself about their deceptive practices. Following is a list of some of the things to watch out for:
Unlicensed Loan Offers
Beware of loan offers through the mail, via telephone or door-to-door solicitations. Reputable lenders typically don’t operate in this way. Make sure any lender you work with is licensed.
Stay clear of lenders who promise that your loan will be approved regardless of your credit history or rating. Get a copy of your credit report, and have some idea of what you should qualify for.
Being Rushed to Sign Papers
Do not let yourself be rushed into the loan process. Study the paperwork, and don’t sign anything you don’t agree with or understand.
High Interest Rates and Fees
Question high-interest rates and fees. Refuse to accept payments you know you cannot afford. Decline any additional services “packed” into the loan, like credit or health insurance.
Blank Spaces in Documents
Do not sign any documents that contain blank spaces. Read loan documents carefully, and have them checked by a trusted friend or a lawyer, if possible.
Federal laws protect consumers against predatory lenders. Chief among them is the Equal Credit Opportunity Act (ECOA). This law makes it illegal for a lender to impose a higher interest rate or higher fees based on a person’s race, color, religion, sex, age, marital status or national origin.
This method has proven succesful in 89.4% of our client cases