Predatory Lending
Much attention has been focused on the predatory lending practices of unscrupulous lenders in the mortgage industry in recent years, but other industries are not immune.
Definition
A precise definition remains elusive, primarily due to the fact that although most of what is considered predatory is illegal, some acts are not; although by almost every standard are unethical. One point is consistent; predatory lending practices benefit the lender, not the borrower. Typical scenarios involve lending practices that:
- Convince a borrower to accept unfair terms,
- By the use of coercion, deceptive or exploitative tactics
- For a loan that the borrower has no need for and cannot afford
Specific Tactics
New ways to take advantage of targets are continually being developed, but some more common ones include:
- Lack of disclosure or false disclosure regarding the terms of the loan
- High interest rates charged to borrowers with poor credit
- Exorbitant fees and unnecessary charges
- Adding unnecessary products, such as insurance, to the loan
- Encouraging regular and unnecessary refinancing of an existing loan
Other Industries
Besides the mortgage industry, regulatory scrutiny has investigated the following types of businesses:
- Pay day loans
- Car loans
- Home improvement
- Loans in anticipation of a tax refund
Protections against the Predators
The best way a consumer protects his or her interests is through education. Find out what your credit report contains, do not believe something if it sounds too good to be true, be suspicious if you are being rushed to sign papers and be alert for high interest rates, prepayment penalties and blank areas in any document you are asked to sign.
