Beware of Predatory Lenders
January 11th, 2008Consumers face an uphill battle when opening a line of credit and many times the lender who seems more than eager to issue a line of credit can turn out to be a wolf in sheep’s clothing. Take for example, Household Finance, who was well known to solicit high risk consumers with poor credit ratings, offering lines of credit at seemingly fair interest rates only to do what they call pyramiding. Pyramiding is when a lender purposely sits on checks until a late fee kicks in, when the next payment comes in, they apply it to the late fee and say the borrower didn’t make a whole payment. Then they collect more late fees or foreclosure fees. This practice is a violation of Regulation Z - Truth in Lending which clearly states the following…
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Regulation Z, as revised effective April 1, 1981. Good faith compliance with this commentary affords protection from liability under 130(f) of the Truth in Lending Act. Section 130(f) (15 U.S.C. 1640) protects creditors from civil liability for any act done or omitted in good faith in conformity with any interpretation issued by a duly authorized official or employee of the Federal Reserve System. |
What is Predatory Lending?
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.”[1] 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
How Can You Protect Yourself against Predatory Lending
The best way consumers can protect themselves against predatory lending is to read the small print whenever signing any type of loan including credit cards, mortages, small business loans and department store lines of credit. Make sure you are aware of the fees associated with a particular line of credit and if they seem unreasonably high, either question the entity offering to issue the line of credit or simly walk away and shop around for a better deal. It is also wise to check the lenders Better Business Bureau reputation and see if there is an alarmingly high number of complaints from consumers on particular lender in question.
For more information please see the FDIC’s Supervisory Policy on Predatory Lending
Many consumers inadvertandly find themselves in the predicament of having taken on too much debt without the means to repay all of their creditors in a timely manner thus incurring additional interest and fees. This scenario can happen to anyone particularly if there has been an emergency in the family or even for students trying to finance their college education on their credit cards. Such situations can lead to damage to the consumers credit rating and leave them feeling as if they have nowhere to turn. In most cases, Consolidating debts can be an effective method to not only reduce the number of monthly payments and climbing interest but it can also work to improve credit scores.
