Borrowers v Predatory Lenders
Lawyers Investigate Predatory Lending
Whether it is a home loan, a car loan, or a debt consolidation loan, borrowers must be wary of predatory lenders. In many cases, a predatory lender will use deception, high-pressure sales tactics, or excessive fees to lock a borrower into a cycle of debt. All too often, the borrower victimized by a predatory lender ends up in bankruptcy, or loses his home, or is forced into a cycle of debt.
The signals which may indicate a predatory or abusive loan include:
Excessive or Unnecessary Fees: Lenders and brokers earn their money by charging a borrower reasonable fees for the loan services they provide. Predatory lenders increase their profits and take advantage of borrowers by charging excessive or unnecessary fees. Not all loans with high fees are predatory loans. However, high origination fees (which are sometimes called discount points) and loan products such as single-premium insurance are examples of fees that can be excessive and predatory.
Excessive Interest and/or Sub-prime Loans: Loans with competitive interest rates are usually made to borrowers who have a strong credit history and can demonstrate a capacity to repay their loans. These loans are called prime loans. Sub-prime loans are usually made to borrowers who have previously filed for bankruptcy protection, have a weak credit history or have some sort of diminished capacity to repay the loan. Not all sub-prime loans are predatory loans and not all loans with high interest rates are predatory loans. However, an unusually high interest rate may indicate a predatory loan.
Excessive Pre-payment Penalties or Balloon Payments: Predatory lenders can trap unsuspecting borrowers into a bad loan by writing into the loan an excessive pre-payment fee (which is sometimes called a pre-payment penalty). Predatory lenders can also trap an unsuspecting borrower into a bad loan by keeping the immediate payments low and inflating the later payments as a balloon payment. A borrower facing the balloon payment may be forced to refinance the bad loan when the unaffordable balloon payment(s) begin, and a predatory lender is all too willing to have the borrower refinance the bad loan with another bad loan. Not all loans with pre-payment penalties or balloon payment terms are predatory loans. However, pre-payment penalties and balloon payments can be a sign of a predatory loan.
Constant Refinancing or "Flipping": If an unscrupulous practice has a nickname, it can't be good. Once a borrower is trapped into a bad loan, a predatory lender may seek to fleece him a second or third time by marketing to the borrower a refinancing of the bad loan. The predatory lender who charges excessive fees on the first loan then can seek to increase his profit by charging excessive fees the second (or third) time he "flips" the loan. Not all lenders who market their loans to borrowers in need of refinancing are predatory lenders, but high-pressure or continual marketing of a refinancing package by a lender may indicate the predatory nature of the lender.
Loans made without any regard for a borrower's ability to repay or with terms that are "too good to be true": Ethical lenders take a borrower's credit history, a borrower's ability to repay, the loan-to-value ratio, and other attributes of the property subject to the loan (such as a home's location in a flood plane) into account before they decide to make a loan. Predatory lenders do not always take these factors into account before they decide to make a loan. Thus, a loan that is made without an investigation into the borrower's assets, a loan that is made without investigation into the attributes of the property that is subject to the loan, or a loan that is advertised as being obtainable without such employment, credit, or other checks may be a predatory loan.
Last-minutes changes in loan terms: Predatory lenders have used bait and switch tactics where the borrower agrees to one set of terms, but the loan is written with a different set of terms. High-pressure sales tactics, including door-to-door salesmen have also been used by predatory lenders to steer borrowers into bad loans and to target unsuspecting or vulnerable borrowers who do not understand the meaning of financial terms into bad loans. If the terms of a loan change at the last minute or if the sales tactics by the lender are very aggressive, then the loan may be a predatory loan.
