If you remember The Great Recession of 2008, you may also recall hearing the term “predatory lending.” During the time leading up to The Great Recession, many borrowers unknowingly borrowed funds from predatory lenders.
What does this term mean? Let’s take a look.
Unpacking Predatory Lending
Predatory lending refers to any lending practice that imposes unfair or abusive loan terms on a borrower to the benefit of the lender. While providing a short term benefit to borrowers such a low upfront payment, over time, the loans benefit the lenders who can use them to their advantage by improper actions such as imposing improper late fees, inflated fees and, inflated costs.
While anyone can become a victim of predatory lending, some segments of our society often fall victim to it more than others. Predatory lending largely affects borrowers who have low income, a low credit score, or the elderly.
How It Works
A potential borrower sees an ad online, receives a phone call or, a solicitation in the mail. The offer seems too good to be true. The loan offers a very low monthly loan payment. A predatory lender will push the “affordable” loan payment and not properly disclose the other components of the loan, such as excessive fees, costs, and unnecessary insurance products. However, the borrower who is usually in a distressed financial situation has a low credit score or fears that this is the only deal they can get, and they take the bait. Predatory loans have taken different names over the years. Some have been referred to as no credit check loans or stated income loans. After being convinced that this is the loan for them, the borrower may experience a hefty loan origination fee, process fees that are added to the loan, and a fee if the loan has a balloon feature and needs to be renewed. It should be noted that the occurrence of one of the items listed above is not in and of itself conclusive evidence that someone has been a victim of predatory lending. It could merely be an unintentional error. Only after an investigation by a predatory lending expert could evidence of predatory lending be determined.
This unethical and predatory act puts several borrowers at risk. Despite the prevalence of anti-predatory lending laws, people can still fall prey to the tactics employed by predatory lenders. These are often the ones who’re the most vulnerable in our society.
If you have a client who may have been a victim of a predatory lender, contact a predatory lending banking expert for your case. Jason D Koontz has over 20 years of experience and provides expert witness consulting services available across the United States. This includes Chicago, Dallas, New York, Fort Worth, Atlanta, and Philadelphia. He also offers real estate expert witness services.