What is it?
How do they do this?
Where to complain
What is it?
It is difficult to define what Predatory Lending is because the "bad actor's" that engage in these abusive lending practices are constantly changing their tactics. One recent government study defines Predatory Lending as lenders, creditors, brokers and home improvement contractors who:
1. Engage in deception or fraud
A few perpetrators are having a significant impact by stealing the hard earned equity in people's homes. This is happening across the country and in this area too.
2. Manipulate the borrower through aggressive sales tactics
3. Take unfair advantage of a borrower's lack of understanding about loan term.
How do they do this?
Loan Flipping is the repeated refinancing of a loan without significant benefit to the borrower. Each time the loan is refinanced the owner loses more equity because they are grossly overcharged in fees. The apparent benefit to the owner is lowering the monthly payment.
Excessive Fees and rates Not all borrowers have good credit, steady income or adequate collateral. Homeowners with less than perfect credit may need access to loans, too. Predatory Lenders go far beyond normal risk based pricing by grossly overcharging fees and rates. Fees totaling more than 3-5% of the loan may be predatory. In most cases the fees are added into the loan and the borrower does not see the true cost of the transaction.
Credit Life and Disability Insurance Some lenders may state that this insurance is required for the loan. It is not. Others may add it into your loan without your consent. This type of insurance is generally expensive when financed into your loan. Combined with high fees and excessive pre-payment penalties, this insurance strips away the equity in the home.
125% Loans Borrowing more than what your home is worth is "Borrowing Trouble". You may have difficulty selling your home later because you do not have enough money to pay off the debt. This may trap you into a high rate loan. Because you have no equity, most lenders will not refinance your loan when and if rates decline.
A myriad of other abuses are being used. Most involve "high pressure sales tactics" towards those who may not be financially savvy or are too trusting to seek outside counsel.
The Federal Trade Commission (FTC) warns of any lender that:
1. Tells you or requires you to falsify information on the loan application.
2. Pressures you into applying for a loan or applying for more money than you need.
3. Pressures you into accepting monthly payments that you cannot afford
4. Fails to provide the required loan disclosures or tells you not to read them
5. Misrepresents the kind of credit you are getting.
6. Promises one set of terms when you apply and provides another set of terms later with no legitimate explanation
7. Tells you to sign blank forms
8. Says you can't have copies of the document that you have signed
Use the "FACE IT" formula to protect yourself
F - Free is too expensive. Always remember, when it looks too good to be true, it probably is
A - Act like you know it. Ask yourself, why is it that when everyone else says no, this lender is saying yes
C - Call somebody. When unsure, ask someone who knows. Contact a lawyer or financial consultant
E - Education. Educate yourself in financial matters
I - Informed. Stay informed. Seek out information. Know your financial position. Review your credit history with a counseling agency.
T - Take Control. If you are told the transaction can't wait until you have the documentation reviewed, throw them out.
Where to Complain
If you think your lender has violated the law or you want information about a right to rescind, contact a private attorney, your state's Attorney General's office or banking regulatory agency or the Federal Trade Commission. The Department of Housing and Urban Development may be of assistance at (414) 297-3214. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices and to provide information to help consumers. Call the FTC at (877) 382-4357 or use the online complaint form at www.ftc.gov. The FTC can't resolve individual problems for consumers, but it can act against a company if it sees a pattern of possible law violations.