Protecting Consumers From Predatory Interest Rates

Predatory lending is the practice of imposing unfair or ruthless loan terms on a borrower. It also includes any practice that persuades a borrower to agree to unfair terms through acts of deception, coercion, or exploitation for a loan that he or she either doesn't need or can't afford. Predatory lending wrenches some $27 billion a year from American consumers in the form of exorbitant fees and interest rates.

Sadly, unscrupulous lenders employ these tactics to benefit from a borrower's lack of knowledge about loans and finances. Typically, these lenders prey on minorities, the poor, the elderly, or less educated. Additionally, they may take advantage of those in dire need of immediate cash to cover unexpected medical bills, emergency home repairs, or keep from falling behind on car payments. Also, persons who have recently lost their jobs or who have a poor credit history and do not qualify for conventional loans may fall victim to predatory loans.

Predatory loans can take many forms: car loans, payday loans, anticipatory tax refund loans, or any kind of consumer debt, and can carry interest rates as high as 300%. The potentially catastrophic consequences of predatory home mortgage loans have come to light in recent years. Because mortgages are secured with a borrower's real property, predatory lenders stand to benefit from, not only, the terms of the loan, but also from the sale of the foreclosed property if the borrower defaults.

Predatory Lending Practices

While there is some dissention as to what establishes a lending practice as predatory, most experts commonly list the following:

  • False or inadequate disclosure
  • Risk-based pricing
  • Exorbitant charges and fees
  • Loan packing
  • Balloon mortgages
  • Negative amortization
  • Abnormal prepayment fees

Protect Yourself Against Predatory Lenders

While not all predatory lending practices are illegal, they can devastate victims, leaving them homeless, or with impossible monthly payments and ruined credit. Borrowers should educate themselves about the tactics used by predatory lenders. Be wary of unlicensed loan offers, take time to read your loan and never sign a document with blank spaces. Also, look out for extraordinarily high interest rates and fees, or prepayment penalties.

Pennsylvania Taking Immediate Legal Protections

In July, Congressmen Steve Cohen (TN-09) and Matt Cartwright (PA-17) introduced the Protecting Consumers from Unreasonable Credit Rates Act. This act would cap the interest rate on consumer credit products, such as payday loans, at 36%, which is the same cap already in place to safeguard military families.

Similar legislation has been introduced in the Senate and has been endorsed by 38 organizations, including Americans for Financial Reform and the Center for Economic Justice.

We at Golomb Legalprotect consumers. Need help? Call us at (215) 278-4449 today.