Predatory lending is the practice of imposing unfair or ruthless loan terms
on a borrower. It also includes any practice that persuades a borrower
to agree to unfair terms through acts of deception, coercion, or exploitation
for a loan that he or she either doesn't need or can't afford.
Predatory lending wrenches some $27 billion a year from American consumers
in the form of exorbitant fees and interest rates.
Sadly, unscrupulous lenders employ these tactics to benefit from a borrower's
lack of knowledge about loans and finances. Typically, these lenders prey
on minorities, the poor, the elderly, or less educated. Additionally,
they may take advantage of those in dire need of immediate cash to cover
unexpected medical bills, emergency home repairs, or keep from falling
behind on car payments. Also, persons who have recently lost their jobs
or who have a poor credit history and do not qualify for conventional
loans may fall victim to predatory loans.
Predatory loans can take many forms: car loans, payday loans, anticipatory
tax refund loans, or any kind of consumer debt, and can carry interest
rates as high as 300%. The potentially catastrophic consequences of predatory
home mortgage loans have come to light in recent years. Because mortgages
are secured with a borrower's real property, predatory lenders stand
to benefit from, not only, the terms of the loan, but also from the sale
of the foreclosed property if the borrower defaults.
Predatory Lending Practices
While there is some dissention as to what establishes a lending practice
as predatory, most experts commonly list the following:
- False or inadequate disclosure
- Risk-based pricing
- Exorbitant charges and fees
- Loan packing
- Balloon mortgages
- Negative amortization
- Abnormal prepayment fees
Protect Yourself Against Predatory Lenders
While not all predatory lending practices are illegal, they can devastate
victims, leaving them homeless, or with impossible monthly payments and
ruined credit. Borrowers should educate themselves about the tactics used
by predatory lenders. Be wary of unlicensed loan offers, take time to
read your loan and never sign a document with blank spaces. Also, look
out for extraordinarily high interest rates and fees, or prepayment penalties.
Pennsylvania Taking Immediate Legal Protections
In July, Congressmen Steve Cohen (TN-09) and Matt Cartwright (PA-17) introduced the
Protecting Consumers from Unreasonable Credit Rates Act. This act would cap the interest rate on consumer credit products, such
as payday loans, at 36%, which is the same cap already in place to safeguard
Similar legislation has been introduced in the Senate and has been endorsed
by 38 organizations, including Americans for Financial Reform and the
Center for Economic Justice.
We at Golomb & Honik, P.C. protect consumers. Need help? Call us at
(215) 278-4449 today.