Predatory Lending
Predatory Lending includes a variety of scams and schemes that operate to defraud consumers across the country.
Predatory lenders come in all shapes and sizes, including credit card offers, consumer loan vendors, “payday lenders,” internet fast-cash schemes, etc.
These kinds of lenders focus on the “sub-prime” market of borrowers – people who because of bad credit or other problems are not readily able to obtain conventional loans.
Predatory lenders often target consumers who historically do not have access to mainstream lending sources. Predatory lenders charge borrowers high rates of interest, fees, expenses and penalties that in some cases may be illegal. Predatory loans can harm borrowers by making it very hard for them to keep up with their payments.
Over the years, consumer groups have identified predatory lending abuses in the following areas:
- Financing fees -- lenders add charges to loans such as origination fees and points and charge additional junk fees to increase the closing costs. Thus the lending transactions require very high up-front fees.
- Fraud and Deceit – concealment to hide the true nature of the loan obligation to the borrower.
- Home improvement scams – where a home improvement contractor arranges the mortgage loan for repairs and charges the borrower for incomplete or shoddy work.
- Insurance Packing – where a lender “packs” a loan with unwanted credit life, credit disability, unemployment, property or health insurance policies that are over-priced.
- Prepayment penalties – where the lender charges big fees when a borrower pays off the loan earlier or refinances it into another loan. This lock borrowers into high interest loans.
- Balloon payments -- A loan that includes an unreasonably high payment due at the end of or during the loan's term. The payment may be hidden and may approach the size of the original loan. These loans are structured to force foreclosure or refinancing.
- Bait and Switch -- where a lender offers one set of more favorable loan terms when the borrower applies, but then forces the borrower to accept less favorable terms later.
- Equity Stripping – where a lender makes a loan based on the borrower’s equity in his or her home, without considering the borrower’s ability to repay. When the borrower becomes unable to repay the loan, the lender forecloses.
- “Packing” a consumer loan – when a lender forces a borrower to pay high fees or to buy “single premium” insurance and roll these costs into the principle of the loan.
- “Flipping” a consumer loan – when a lender forces a borrower to refinance, renew or roll over a loan over and over again. Each time the loan is renewed or refinanced, the lender charges additional fees that the borrower has to pay. The result is frequent unnecessary refinancings of a loan with no benefits to the borrower. Each time the loan is refinanced the lender charges more fees, placing the borrower further in debt for a longer time.
Predatory lenders engage in fraud when they misrepresent or conceal and hide the true nature of a credit or loan arrangement from the unsuspecting borrower. In particular, predatory lenders may use deceptive and high-pressure sales tactics to target borrowers including the elderly, minorities, and those with lower incomes and less education.
Laws that may protect the borrower and consumer in these situations can include the Truth in Lending Act (“TILA”), the Home Ownership and Equity Protection Act (“HOEPA”), the Real Estate Settlement Procedures Act (“RESPA”), as well as state laws meant to protect consumers from predatory lending practices.
Wallace & Graham has worked to assist its clients with protecting their rights against the unlawful schemes of predatory lenders. Please contact us with any questions or if you'd like to explore your legal rights. You can reach us at 1-800-849-5291 or use this convenient form.