What is Predatory Lending? You may have heard of the words; “predatory lending”, but you really don’t know what it means. Predatory lending refers to fraudulent lending practices conducted on a mortgage loan origination occasion which are illegal, deceptive, unfair, or simply unethical. You can’t call it predatory lending if the lender is just looking for a little extra money to help them keep afloat! This type of lending has become extremely widespread and there are some well-known names in this industry. Wells Fargo is one, Countrywide is another, and Citibank is another.
There are many reasons why a lender would be predatory lending. Banks make loans that are unsecured and they charge high interest rates and variable interest rates. The lenders take advantage of their clients’ poor credit history and charge exorbitant fees and rates that are unreasonably high. Other predatory lending strategies are putting borrowers into debt and forcing them to sell their homes under a deceptive sales contract. A Wells Fargo loan would fall into this category as well as a Countrywide loan.
What are Predatory Lending and What Can You Do About It? The predatory lending practices have been illegal and consumers have rights too. Unfortunately, these laws were not passed to protect the consumer. The first thing a borrower should do when they find themselves in debt is to check their credit rating and check with the three major agencies to see what is being reported. If there are suspicious or high fees on a loan then there may be illegal predatory lending practices.
Many borrowers turn to a bankruptcy attorney to help them get out of debt. They feel that a bankruptcy lawyer will help them in a legal battle against a predatory lender and will save them from being sued by the lender for predatory lending. While a bankruptcy attorney can inform the borrower of legal rights and resources, they are not trained to protect those rights and cannot prevent the lender from taking advantage of them. What a bankruptcy attorney can do is give advice to the borrower and let them know their options and how to proceed. They may even be able to negotiate a debt settlement or other credit options with the lender to lower the high interest rates and keep the mortgage at an affordable rate.
Predatory lending companies use many methods to borrow money including applying for credit, offering mortgages, requiring application fees, and requiring a high interest rate. Banks and credit unions are among the most common victims of predatory lending. The predatory lenders will offer very low introductory rates, balloon payments and then force the borrowers into debt. By the time the borrowers realize the deception they may have already paid more for the home than the house was worth.
When a borrower gets a mortgage loan they should read the fine print carefully. This includes understanding exactly how much they can afford to pay each month and the total cost of the loan. Many borrowers are willing to buy a house because they feel it is a great investment but don’t think about the long term consequences. If a lending party offers a balloon payment and it is completely unsecured, this is considered predatory lending.
Even credit cards that seem to be secure can quickly turn into dangerous loans when used incorrectly. If the credit card company allows the borrower to charge exorbitant amounts without charging reasonable high fees, this is predatory lending. Credit card companies rely on the borrower having a good credit history and a low debt ratio, so they will continue to receive favorable rates. However, if the credit card company collects exorbitant fees every month and does not ever come close to covering the interest due, it is very easy to understand how this can become very risky.
Consumers should also be aware that many lenders specialize in predatory lending. A good example is a payday lender. A payday lender will often charge extremely high fees and interest rates and will make it very difficult for a person to ever pay off the loan. If a person goes to a typical lender and is unable to get approved, the lending party may offer a second chance or consider a short term loan. These second chances are typically very attractive to borrowers, however these are generally not the type of loan terms a good consumer would look for.