Predatory Lending

Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Predatory Lending shopping experience:

1. Compare - without doubt the biggest advantage that the Predatory Lending offers shoppers today is the ability to compare thousands of Predatory Lending at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.

2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about

3. Testimonials - don't know anybody that has bought a Predatory Lending? Wrong! If the Predatory Lending is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.

4. Questions - Got a question about Predatory Lending then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....

5. Reputation - Never heard of the company selling Predatory Lending? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Predatory Lending and build up a picture of their reputation for sales, returns, customer service, delivery etc.

6. Returns - still worried that even after all of the above your Predatory Lending wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.

7. Feedback - happy with your Predatory Lending then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.

8. Security - check for the yellow padlock on the Predatory Lending site before you buy, and the s after http:/ /i.e. https:// = a secure site

9. Contact - got a question about Predatory Lending, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.

10. Payment - ready to pay for your Predatory Lending, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.

Predatory lending is a pejorative term used to describe practices of some lenders. There are no legal definitions in the United States of predatory lending, though there are laws against many of the specific practices commonly identified as predatory, and various federal agencies use the term as a catch-all term for many specific illegal activities in the loan industry.

One less contentious definition of the term is "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against." Investor Dictionary Other types of lending sometimes also referred to as predatory include payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.

Although predatory lenders are most likely to target the less educated, racial minorities and the elderly, victims of predatory lending are represented across all demographics.http://www.knowledgeplex.org/kp/text_document_summary/article/relfiles/hot_topics/Carr-Kolluri.pdf Fannie Mae Overview of Predatory Lendinghttp://www.ftc.gov/opa/2001/04/predlend.htm Federal Trade Commission

Predatory lending often occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on payment, or even if he doesn't default, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property.

Abusive or unfair lending practices There are many lending practices which have been called abusive and labeled with the term "predatory lending." There is a great deal of dispute between lenders and consumer groups as to what exactly constitutes "unfair" or "predatory" practices, but the following are sometimes cited.

Risk-based pricing. This is the practice of charging more (in the form of higher interest rates and fees) for extending credit to borrowers identified by the lender as posing a greater credit risk. The lending industry argues that risk-based pricing is a legitimate practice; since a greater percentage of loans made to less creditworthy borrowers can be expected to go into default, higher prices are necessary to obtain the same yield on the portfolio as a whole. Some consumer groups argue that higher prices paid by more vulnerable consumers cannot always be justified by increased credit risk.=19034&tx_ttnews=2680&cHash=2669ca5d9e]

Single premium credit insurance. This is the purchase of insurance which will pay off the loan in case the homebuyer dies. It is more expensive than other forms of insurance because it does not involve any medical checkups, but customers almost always are not shown their choices, because usually the lender is not licensed to sell other forms of insurance. In addition, this insurance is usually financed into the loan which causes the loan to be more expensive, but at the same time encourages people to buy the insurance because they do not have to pay up front.

Failure to disclose loan price is negotiable. Many lenders will negotiate the price structure of the loan with borrowers. In some situations, borrowers can even negotiate an outright reduction in the interest rate or other charges on the loan. Consumer advocates argue that borrowers, especially but not only unsophisticated borrowers, are not aware of their ability to negotiate, and might even be under the mistaken impression that the lender is placing the borrower's interests above its own. Thus, many borrowers do not take advantage of their ability to negotiate.

Short-term loans with disproportionally high fees, such as payday loans, credit card late fees, checking account overdraft fees, and Tax Refund Anticipation Loans, where the fee paid for advancing the money for a short period of time works out to an annual interest rate significantly in excess of the market rate for high-risk loans. The originators of such loans dispute that the fees are interest.

Servicing agent and securitization abuses. The servicing agent is the entity that receives the mortgage payment, keeps the payment records, provides borrowers with account statements, imposes late charges when the payment is late, and pursues delinquent borrowers. A securitization is a financial transaction in which assets, especially debt instruments, are pooled and securities representing interests in the pool are issued. Most loans are subject to being bundled and sold, and the rights to act as servicing agent sold, without the consent of the borrower. A federal statute requires notice to the borrower of a change in servicing agent, but does not protect the borrower from being held delinquent on the note for payments made to the servicing agent who fails to forward the payments to the owner of the note, especially if that servicing agent goes bankrupt, and borrowers who have made all payments on time can find themselves being foreclosed on and becoming unsecured creditors of the servicing agent. Will My Mortgage Loan Be Sold? Foreclosures can sometimes be conducted without proper notice to the borrower. In some states (see Texas Rule of Civil Procedure 746), there is no defense against eviction, forcing the borrower to move and incur the expense of hiring a lawyer and finding another place to live while litigating the claim of the "new owner" to own the house, especially after it is resold one or more times. When the debtor demands that the current claimed note owner produce the original note with his signature on it, the note owner typically is unable or unwilling to do so, and tries to establish his claim with an affidavit that it is the owner, without proving it is the "holder in due course", the traditional standard for a debt claim, and the courts often allow them to do that. In the meantime, the note continues to be traded, its physical whereabouts difficult to discover.

Disputes over predatory lending The organization ACORN claims that predatory loans are usually made in poor and minority neighborhoods where better loans are not readily available. ACORN campaign against predatory lending Organizations such as AARP, Inner City Press, and ACORN have worked to stop what they describe as predatory lending. ACORN has targeted specific companies such as HSBC Finance and H&R Block, successfully forcing them to change their practices.http://www.thenation.com/doc/20060501/yeung The Nation: Tax Refund Scheme Targets the Working Poor

On the other side of the issue are various subprime lending advocates, such as the National Home Equity Mortgage Association (NHEMA), which say many practices commonly called "predatory," particularly the practice of risk-based pricing, are not actually predatory, and that many laws aimed at "predatory lending" significantly restrict the availability of mortgage finance to lower-income borrowers.http://www.nhema.org/press.asp?bid=893

Some subprime lending practices have raised concerns about mortgage discrimination on the basis of race. Study Finds Disparities in Mortgages by Race The New York Times By Manny Fernandez Published: October 15, 2007 As African Americans and other minorities are being disproportionately led to Subprime lending with higher interest rates than their white counterparts. NAACP Fights Loan Discrimination Even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender, though not necessarily a sub-prime loan.

Underlying issues There are many underlying issues in the predatory lending debate:

Judicial practices: Some argue that much of the problem arises from a tendency of the courts to favor lenders, and to shift the burden of proof of compliance with the terms of the debt instrument to the debtor. According to this argument, it should not be the duty of the borrower to make sure his payments are getting to the current note-owner, but to make evidence that all payments were made to the last known agent for collection sufficient to block or reverse repossession or foreclosure, and eviction, and to cancel the debt if the current note owner cannot prove he is the "holder in due course" by producing the actual original debt instrument in court.

Risk-based pricing: The basic idea is that borrowers who are thought of as more likely to default on their loans should pay higher interest rates and finance charges to compensate lenders for the increased risk. In essence, high returns motivate lenders to lend to a group they might not otherwise lend to -- "subprime" or risky borrowers. Advocates of this system believe that it would be unfair -- or a poor business strategy -- to raise interest rates globally to accommodate risky borrowers, thus penalizing low-risk borrowers who are unlikely to default. Opponents argue that the practice tends to disproportionately create capital gains for the affluent while oppressing working-class borrowers with modest financial resources. In Defense of Payday Lending Some people consider risk-based pricing to be unfair in principle. Lenders contend that interest rates are generally set fairly considering the risk that the lender assumes, and that competition between lenders will ensure availability of appropriately-priced loans to high-risk customers. Still others feel that while the rates themselves may be justifiable with respect to the risks, it is irresponsible for lenders to encourage or allow borrowers with credit problems to take out high-priced loans. For all of its pros and cons, risk-based pricing remains a universal practice in bond markets and the insurance industry, and it is implied in the stock market and in many other open-market venues; it is only controversial in the case of consumer loans.

Competition: Some believe that risk-based pricing is fair but feel that many loans charge prices far above the risk, using the risk as an excuse to overcharge. These criticisms are not levied on all products, but only on those specifically deemed predatory. Proponents counter that competition among lenders should prevent or reduce overcharging.

Financial Education: Many observers feel that competition in the markets served by what critics describe as "predatory lenders" is not affected by price because the targeted consumers are completely uneducated about the time value of money and the concept of Annual percentage rate, a different measure of price than what many are used to.

Caveat Emptor: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if it seems to make no attempts at deceiving the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has an almost fiduciary duty to advise the borrower that funds can be obtained more cheaply. Also at issue are certain financial products which appear to be profitable only due to adverse selection or a lack of knowledge on the part of the customers relative to the lenders. For example, some people allege that credit insurance would not be profitable to lending companies if only those customers who had the right "fit" for the product actually bought it (i.e., only those customers who were not able to get the generally cheaper term life insurance).

Discrimination: Some organizations feel that many financial institutions continue to engage in racial discrimination. Most do not allege that the loan underwriters themselves discriminate, but rather that there is systemic discrimination. Situations in which a loan broker or other salesman may negotiate the interest rate are likely more ripe for discrimination. Discrimination may occur if, when dealing with racial minorities, loan brokers tend to claim that a person's credit score is lower than it is, justifying a higher interest rate charged, on the hope that the customer assumes the lender to be correct. This may be based on an internalized bias that a minority group has a lower economic profile. It is also possible that a broker or loan salesman with some control over the interest rate might attempt to charge a higher rate to persons of race which he personally dislikes. For this reason some call for laws requiring interest rates to be set entirely by objective measures. ACORN - Predatory Lending

United States legislation combating predatory lending Many laws at both the Federal and state government level are aimed at preventing predatory lending. Although not specifically anti-predatory in nature, the Federal Truth in Lending Act requires certain disclosures of Annual percentage rate and loan terms. Also, in 1994 section 32 of the Truth in Lending Act, entitled the Home Ownership and Equity Protection Act of 1994, was created. This law is devoted to identifying certain high-cost, potentially predatory mortgage loans and reining in their terms.

Twenty-four states have passed anti-predatory lending laws. Arkansas, Georgia (U.S. state), Illinois, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina are among those states considered to have the strongest laws. Other states with predatory lending laws include: California, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia. These laws usually describe one or more classes of "high-cost" or "covered" loans, which are defined by the fees charged to the borrower at origination or the APR. While lenders are not prohibited from making "high-cost" or "covered" loans, a number of additional restrictions are placed on these loans, and the penalties for noncompliance can be substantial.

Research has found ambiguous results of such legislation, including finding that high-cost mortgage applications can possibly rise after adoption of laws against predatory lending. St. Louis Federal Reserve Review, The Varying Effects of Predatory Mortgage Lending Laws on High-Cost Mortgage Applications

See also

Loan sharking
Overdraft protection loans
Payday loan
Refund Anticipation Loan
Settlement (finance)
Title loan
Usury
Mortgage Discrimination
Securitization

External links

Don't Be A Victim Of Loan Fraud from United States Department of Housing and Urban Development.
Protect Yourself in the Loan Process from the California Department of Real Estate.
Federal Citizen Information Center, site has links to state and federal regulatory agencies and other consumer information provided by the United States General Services Administration.
Challenges in Combating Predatory Lending from The United States General Accounting Office.
Predatory Lending article from Dollars & Sense magazine
Information on Financial Alternatives to Payday Loans from Virginians Against Payday Loans (VAPL)

References

Predatory lending is a pejorative term used to describe practices of some lenders. There are no legal definitions in the United States of predatory lending, though there are laws against many of the specific practices commonly identified as predatory, and various federal agencies use the term as a catch-all term for many specific illegal activities in the loan industry.

One less contentious definition of the term is "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against." Investor Dictionary Other types of lending sometimes also referred to as predatory include payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.

Although predatory lenders are most likely to target the less educated, racial minorities and the elderly, victims of predatory lending are represented across all demographics.http://www.knowledgeplex.org/kp/text_document_summary/article/relfiles/hot_topics/Carr-Kolluri.pdf Fannie Mae Overview of Predatory Lendinghttp://www.ftc.gov/opa/2001/04/predlend.htm Federal Trade Commission

Predatory lending often occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on payment, or even if he doesn't default, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property.

Abusive or unfair lending practices There are many lending practices which have been called abusive and labeled with the term "predatory lending." There is a great deal of dispute between lenders and consumer groups as to what exactly constitutes "unfair" or "predatory" practices, but the following are sometimes cited.

Risk-based pricing. This is the practice of charging more (in the form of higher interest rates and fees) for extending credit to borrowers identified by the lender as posing a greater credit risk. The lending industry argues that risk-based pricing is a legitimate practice; since a greater percentage of loans made to less creditworthy borrowers can be expected to go into default, higher prices are necessary to obtain the same yield on the portfolio as a whole. Some consumer groups argue that higher prices paid by more vulnerable consumers cannot always be justified by increased credit risk.=19034&tx_ttnews=2680&cHash=2669ca5d9e]

Single premium credit insurance. This is the purchase of insurance which will pay off the loan in case the homebuyer dies. It is more expensive than other forms of insurance because it does not involve any medical checkups, but customers almost always are not shown their choices, because usually the lender is not licensed to sell other forms of insurance. In addition, this insurance is usually financed into the loan which causes the loan to be more expensive, but at the same time encourages people to buy the insurance because they do not have to pay up front.

Failure to disclose loan price is negotiable. Many lenders will negotiate the price structure of the loan with borrowers. In some situations, borrowers can even negotiate an outright reduction in the interest rate or other charges on the loan. Consumer advocates argue that borrowers, especially but not only unsophisticated borrowers, are not aware of their ability to negotiate, and might even be under the mistaken impression that the lender is placing the borrower's interests above its own. Thus, many borrowers do not take advantage of their ability to negotiate.

Short-term loans with disproportionally high fees, such as payday loans, credit card late fees, checking account overdraft fees, and Tax Refund Anticipation Loans, where the fee paid for advancing the money for a short period of time works out to an annual interest rate significantly in excess of the market rate for high-risk loans. The originators of such loans dispute that the fees are interest.

Servicing agent and securitization abuses. The servicing agent is the entity that receives the mortgage payment, keeps the payment records, provides borrowers with account statements, imposes late charges when the payment is late, and pursues delinquent borrowers. A securitization is a financial transaction in which assets, especially debt instruments, are pooled and securities representing interests in the pool are issued. Most loans are subject to being bundled and sold, and the rights to act as servicing agent sold, without the consent of the borrower. A federal statute requires notice to the borrower of a change in servicing agent, but does not protect the borrower from being held delinquent on the note for payments made to the servicing agent who fails to forward the payments to the owner of the note, especially if that servicing agent goes bankrupt, and borrowers who have made all payments on time can find themselves being foreclosed on and becoming unsecured creditors of the servicing agent. Will My Mortgage Loan Be Sold? Foreclosures can sometimes be conducted without proper notice to the borrower. In some states (see Texas Rule of Civil Procedure 746), there is no defense against eviction, forcing the borrower to move and incur the expense of hiring a lawyer and finding another place to live while litigating the claim of the "new owner" to own the house, especially after it is resold one or more times. When the debtor demands that the current claimed note owner produce the original note with his signature on it, the note owner typically is unable or unwilling to do so, and tries to establish his claim with an affidavit that it is the owner, without proving it is the "holder in due course", the traditional standard for a debt claim, and the courts often allow them to do that. In the meantime, the note continues to be traded, its physical whereabouts difficult to discover.

Judicial practices: Some argue that much of the problem arises from a tendency of the courts to favor lenders, and to shift the burden of proof of compliance with the terms of the debt instrument to the debtor. According to this argument, it should not be the duty of the borrower to make sure his payments are getting to the current note-owner, but to make evidence that all payments were made to the last known agent for collection sufficient to block or reverse repossession or foreclosure, and eviction, and to cancel the debt if the current note owner cannot prove he is the "holder in due course" by producing the actual original debt instrument in court.

Risk-based pricing: The basic idea is that borrowers who are thought of as more likely to default on their loans should pay higher interest rates and finance charges to compensate lenders for the increased risk. In essence, high returns motivate lenders to lend to a group they might not otherwise lend to -- "subprime" or risky borrowers. Advocates of this system believe that it would be unfair -- or a poor business strategy -- to raise interest rates globally to accommodate risky borrowers, thus penalizing low-risk borrowers who are unlikely to default. Opponents argue that the practice tends to disproportionately create capital gains for the affluent while oppressing working-class borrowers with modest financial resources. In Defense of Payday Lending Some people consider risk-based pricing to be unfair in principle. Lenders contend that interest rates are generally set fairly considering the risk that the lender assumes, and that competition between lenders will ensure availability of appropriately-priced loans to high-risk customers. Still others feel that while the rates themselves may be justifiable with respect to the risks, it is irresponsible for lenders to encourage or allow borrowers with credit problems to take out high-priced loans. For all of its pros and cons, risk-based pricing remains a universal practice in bond markets and the insurance industry, and it is implied in the stock market and in many other open-market venues; it is only controversial in the case of consumer loans.

Competition: Some believe that risk-based pricing is fair but feel that many loans charge prices far above the risk, using the risk as an excuse to overcharge. These criticisms are not levied on all products, but only on those specifically deemed predatory. Proponents counter that competition among lenders should prevent or reduce overcharging.

Financial Education: Many observers feel that competition in the markets served by what critics describe as "predatory lenders" is not affected by price because the targeted consumers are completely uneducated about the time value of money and the concept of Annual percentage rate, a different measure of price than what many are used to.

Caveat Emptor: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if it seems to make no attempts at deceiving the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has an almost fiduciary duty to advise the borrower that funds can be obtained more cheaply. Also at issue are certain financial products which appear to be profitable only due to adverse selection or a lack of knowledge on the part of the customers relative to the lenders. For example, some people allege that credit insurance would not be profitable to lending companies if only those customers who had the right "fit" for the product actually bought it (i.e., only those customers who were not able to get the generally cheaper term life insurance).

Discrimination: Some organizations feel that many financial institutions continue to engage in racial discrimination. Most do not allege that the loan underwriters themselves discriminate, but rather that there is systemic discrimination. Situations in which a loan broker or other salesman may negotiate the interest rate are likely more ripe for discrimination. Discrimination may occur if, when dealing with racial minorities, loan brokers tend to claim that a person's credit score is lower than it is, justifying a higher interest rate charged, on the hope that the customer assumes the lender to be correct. This may be based on an internalized bias that a minority group has a lower economic profile. It is also possible that a broker or loan salesman with some control over the interest rate might attempt to charge a higher rate to persons of race which he personally dislikes. For this reason some call for laws requiring interest rates to be set entirely by objective measures. ACORN - Predatory Lending

Loan sharking
Overdraft protection loans
Payday loan
Refund Anticipation Loan
Settlement (finance)
Title loan
Usury
Mortgage Discrimination
Securitization

External links

Don't Be A Victim Of Loan Fraud from United States Department of Housing and Urban Development.
Protect Yourself in the Loan Process from the California Department of Real Estate.
Federal Citizen Information Center, site has links to state and federal regulatory agencies and other consumer information provided by the United States General Services Administration.
Challenges in Combating Predatory Lending from The United States General Accounting Office.
Predatory Lending article from Dollars & Sense magazine
Information on Financial Alternatives to Payday Loans from Virginians Against Payday Loans (VAPL)

References

HUD Predatory Lending
Over the last several years, our nation has made enormous progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too ...

Predatory Lending & Mortgage Fraud - Loan Safe Solutions
The Predatory Lending & Mortgage Fraud forum will teach you the truth in lending act, respa and other laws you can use to fight back against your lender. Loan Safe Investigations

Predatory lending - Wikipedia, the free encyclopedia
Predatory lending is a pejorative term used to describe practices of some lenders. There are no legal definitions in the United States of predatory lending, though there are laws ...

Resources For Borrowers And Victims Of Predatory Lending

Payday Loans - Predatory Lending Association (PLA)
Payday loan information from the Predatory Lending Association. Helping predatory lenders extract maximum profit with from the working poor with payday loans.

Columbia University - Economics
Nationally ranked undergraduate and graduate programs. Faculty list, admissions information, course descriptions, announcements, discussion papers, and links.

Center for Responsible Lending
Fight Predatory Lending. Institute for Foreclosure Legal Assistance. Consumer Resources: Where to Get Help. Consumer Appellate Assistance Project provides attorney support for consumer ...

Office of Housing - Avoiding Predatory Lending - Coalition for ...
This web site offers information and materials to homeowners, housing professionals and others who would like to prevent predatory lending.

predatory lending
Articles about predatory lending practices by home mortgage companies. Released in 2001, offers links to assist in conusmer efforts when combating predatory lenders.

BBC NEWS | Business | US backs home lending clampdown
The US House of Representatives votes to license mortgage brokers and ban predatory lending. ... The US House of Representatives has voted to regulate mortgage brokers in an ...