Predatory Lending - Isn’t that illegal?

Although some consumer protection laws exist to protect borrowers, law enforcement and regulators don’t have a crystal ball to pinpoint every predatory lender. Perpetrators can operate for years before a class action lawsuit or criminal filing stops them from exploiting people. The best defense is to become informed!

What to look out foR

Typically, predatory lenders target marginalized communities and vulnerable people. Seniors, disabled people, single parents, and low-income households are common victims of predatory terms. Even if you do not fall into one of these categories, you can still fall victim to predatory lending.

Predatory lenders and lending practices are not always “clear as day”. Retired Housing Counselor, Aaron Williams, advised, “They won’t be wearing a sign on their forehead that tells you they’re a predatory lender.” However, there are some tell-tale signs that a promotion or lending product is likely predatory. 

Deceptive Sales Tactics

• Unwanted solicitation. Often promising something that sounds “too good to be true”.
• Urging you to quickly sign before you’ve had time to read the paperwork. They may pressure you with statements like “It’s a one-day only offer.”
• Unusual offer formats or signing documents in odd locations, like a parking lot or restaurant. 
• Blank forms. If a lender pushes you to sign a document with information that can be filled in later. 

    Unfair Terms

• Prepayment penalties - fees for paying off the loan early.
• High interest rate - even if you have “bad” or “no” credit, if the rate is higher than what you’re offered from an insured bank, it’s likely predatory. Shop around for the best rate.
• Inflated values - if the loan is for more than you need or the home is worth, it is likely predatory. 
• Credit life insurance - this insurance only benefits the lender. If it’s required, it may be a predatory lending product.
• Limits your legal options - some predatory lenders add a clause that you can only use the lawyers they chose. This could mean they hire someone they know will work in their favor. 

Real Life Example

Shortly after moving to a new home, I received a “check” in the mail. After looking closely, I realized it was not a check but instead a personal loan promotion. The letter stated, in fine print, that by cashing the check I would be agreeing to the loan terms. The unusual format was a mini bait-and-switch.

For more predatory lending examples, check out Pennsylvania Housing Finance Agency Post.

Where to report

If you’ve encountered predatory lending, report it! You can save others from harm. You may need to report to a few different places. 
 Authorities

• Pennsylvania - Report to PA’s Attorney General
• Philadelphia - Report to Philadelphia’s local leadership
• Federal Trade Commission - If you or someone you know falls victim to predatory lending or fraud. 

Being an informed consumer is hard work! We created a free Homeownership Success Workshop to protect new homeowners and set them up for stable, affordable homeownership. Sign up for the next monthly workshop!

Homeownership Success Workshop

Naara Silva

Naara serves at AHCOPA as a second year AmeriCorps VISTA in the Housing Action Corps