Predatory lending (2024)

FAQs

Predatory lending? ›

Primary tabs. Predatory lending is any lending practice where the borrower is taken advantage of by the lender. Predatory lenders impose lending terms that are unfair or abusive. This predatory practice is often committed against victims who are elderly or low-income.

Predatory lending is any lending practice that imposes unfair and abusive loan terms on borrowers, including high-interest rates, high fees, and terms that strip the borrower of equity. Predatory lenders often use aggressive sales tactics and deception to get borrowers to take out loans they can't afford.

Payday loans are one of the most common examples of predatory lending because they have high fees and short repayment terms.

While predatory mortgage lending isn't as common as it once was, there are bad actors today who still use the average person's lack of personal finance savvy against them.

In California, all you have to show to prove that predatory lending took place is that your lender had reason to believe that you could not afford your loan amount. You can use a violation of predatory lending law as grounds to rescind your loan or as a formidable defense against foreclosure.

Look for high or hidden fees.

High interest rates and other fees are common tactics used to take advantage of borrowers. Be sure to read through the terms and conditions and look for sections that list the fees, penalties, and payment details.

Can I Sue for Predatory Lending? If you can prove that your lender violated local or federal laws, including the Truth in Lending Act (TILA), you may want to consider filing a lawsuit. It's never easy going against a wealthy financial institution.

Predatory lenders typically target minorities, the poor, the elderly and the less educated.

The investigation searched public records filed with the U.S. Securities and Exchange Commission and found 20 banks including Wells Fargo, Bank of America, and Texas-based banks such as the Capital Bank of Texas, TBK Bank, and Independent Bank have either recently funded or are currently funding predatory lenders.

Reach out to a nonprofit credit counseling agency

Credit counseling agencies specialize in helping people with their finances, including getting out of debt. Credit counselors can work with you to create a budget, manage your bills and explore your debt payment options, including a debt management plan.

Are payday loans considered predatory lending? ›

Payday loans are typically predatory in nature. Payday loans are short-term, high-interest loans, usually for small amounts ($500 or less), that are due your next pay day.

If you have been a victim of lending abuse, let others know! Your complaint could save others from being victims, too. Call your local office of consumer affairs or your state Attorney General's office—they're listed in the Government section of the phone book. Report your experience to the Federal Trade Commission.

The FDIC addresses the problem of predatory lending by taking supervisory action, by encouraging and assisting banks to serve all sectors of their community, and by providing consumers with information to help make informed financial decisions.

Predatory lenders will target homeowners who have equity in their homes and may also have credit problems or need cash. They will advertise their services to people in financial need - people who may have fallen behind paying in their bills, or need money for medical bills, cars or costly home repairs.

If you are accused of predatory lending based upon sales tactics that falsely lured the borrower into obtaining — or even seeking to obtain — a loan from you, you face prosecution for this law. If convicted, you face a misdemeanor, punishable by up to six months in a county jail and a maximum $2,500 fine.

The California Constitution prohibits loans that are made primarily for personal, family or household purposes from having interest rates above 10% per year. This is California's general usury law. However, there are many exceptions.

Expert-Verified Answer

Charging fees is not considered a predatory lending practice, unlike high pressure sales, steering, and padding costs and fees. Legitimate fees are standard in lending, but they become predatory if they are hidden or excessive.

§ 1639(b) (Dodd-Frank Act § 1403). Further authority to prohibit deceptive, unfair or predatory loan terms is given to the Federal Reserve Board, which can regulate all residential mortgages to ensure that terms are in the interest of consumers and the public. See id. (Dodd Frank Act § 1405).

Cap APRs at 36% for smaller loans, such as those of $1,000 or less, with lower rates for larger loans.