Consumer Law

Predatory Lending

Predatory lending occurs when a borrower enters into a loan transaction with terms and conditions that are abusive, unfair, and deceptive. Although several state and federal laws are designed to deter predatory lending tactics, the most effective deterrent is an informed consumer.

What is Predatory Lending?

Lending can become predatory when aggressive tactics are used to convince a borrower to agree to unfair or abusive loan terms and conditions. Although there is no single definition for predatory lending, it generally occurs when a lending company, broker, or even home improvement contractor takes undue advantage of borrowers by deception, fraud, or manipulation.

Predatory lenders charge excessive fees, interest rates, and pre-payment penalties and often require balloon payments. Frequently, lending decisions are made without considering the borrower's ability to repay, and predatory lenders may permit repeated refinancing over a short period of time without any economic gain for the borrower.

Although predatory lending occurs across various demographic groups, predatory terms are often targeted at the elderly, minorities, and low-income homeowners. Victims of predatory lending practices often face financial crisis, including bankruptcy and home foreclosure, as a result of the deceptive conduct.

Anti-Predatory Lending Laws

Several laws are designed to protect consumers against predatory/abusive lending practices. On the federal level, the Truth in Lending Act (TILA) requires lenders to disclose the APR and loan terms, and the Home Ownership and Equity Protection Act, which is an amendment to TILA was specifically designed to identify predatory mortgage loans. In addition, other consumer protection laws such as the Federal Trade Commission Act (FTC Act), have provisions that deter predatory lending practices.

Moreover, many states have their own anti-predatory laws that are designed to address abusive mortgage lending by restricting the terms or provisions of certain loans. In addition, states have increased the registration or licensing requirements of mortgage brokers and mortgage lenders and have undertaken enforcement activities under existing consumer protection laws and regulations to combat abusive lending.

Numerous federal, state, and non-profit agencies offer assistance for victims of predatory lending practices, including the U.S. Department of Justice, Housing and Urban Development (HUD), state and local consumer protection agencies, state attorney general's office, debt counseling agencies, consumer protection agencies and other nonprofit organizations such as the AARP.

Are you a Victim of Predatory Lending?

Before borrowing money, particularly where your house is used for collateral, read all terms and conditions of the loan carefully and honestly evaluate your ability to repay the loan. Refuse to go through with a lending transaction if you can't afford the repayment plan, if the number of "points" (up-front interest) on the loan is high, or if the terms are changed at the last moment. If you have entered into a loan agreement with terms and conditions that appear predatory, it is important to act quickly to reduce the risk of harm. For certain transactions, you may have the right to rescind the loan if you act within 3 days of signing the agreement. Otherwise, you may need to take additional steps to manage your finances and protect your home against foreclosure.

Victims of predatory lending practices should report any predatory activity to appropriate federal, state, and local agencies. If your loan problem relates to an FHA mortgage origination, underwriting, appraisals or foreclosures, you can seek assistance from HUD National Servicing Center. For non-FHA mortgage problems, including non-disclosure of interest rates and finance charges, prepayment penalties, credit life insurance, fraud, deception, etc., you should contact the appropriate agency to file a complaint against the lender.

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