Predatory Lending Practices and Foreclosure Laws

Find out what you can do if you think you might be a victim of predatory lending.

Federal law doesn’t explicitly give a definition of "predatory lending," and state laws describe predatory lending in different ways. Generally, predatory lending is a term typically used to describe unconscionable lending practices where a borrower is provided with an unfair loan. The Office of the Comptroller of the Currency (OCC), which regulates and supervises all national banks and federal savings associations, has described predatory lending as the disregard of basic principles of loan underwriting.

If a lender used unethical, deceptive, unfair, or fraudulent activity during your loan origination process, it might have engaged in predatory lending.

What Is Predatory Lending?

Courts generally consider a loan to be predatory if the lender:

  • used pushy and deceptive sales tactics to get a vulnerable or unsophisticated borrower to agree to unfavorable terms
  • charged a very high interest rate to someone who's likely to default
  • misrepresented the actual costs, risks, or appropriateness of the loan terms, or
  • charged excessive amounts for tasks or expenses like appraisals, closing costs, and document preparation.

What are Some Common Predatory Lending Practices?

Predatory lending encompasses several different types of abuses that loan originators might engage in. According to the OCC, the fundamental characteristic of predatory lending is “the aggressive marketing of credit to prospective borrowers who simply cannot afford the credit on the terms being offered.” The following are a few situations that could constitute predatory lending:

  • packing of excess or hidden fees in the amount financed
  • loan flipping (frequent refinancings that result in little or no economic benefit to the borrower but generate loan fees, prepayment penalties, and other fees for the lender)
  • targeting residents within a particular area, usually a low-income neighborhood, for unfair loans
  • pushing a borrower into taking out a risky, high-cost loan—even when the borrower has good credit and should qualify for a low-cost, conventional loan, and
  • targeting certain borrowers—often elderly, low-income, and minority borrowers—for abusive loan products.

Laws That Protect Borrowers From Predatory Lending

Federal laws that protect borrowers against predatory lending practices include:

The federal Fair Housing Act (FHA) can also be used to combat predatory lending, and state law often restricts the terms or provisions of certain loans.

Talk to a Lawyer

Ultimately, there's no bright line that a loan must cross to be considered predatory; an assessment must be made on a case by case basis. In court cases, the court will look at each of the factors making up the loan and decide whether the factors, taken as a whole, constitute predatory lending. If a court determines that a loan was predatory, it could order the lender to modify the terms of the loan or cancel the debt, or take any other equitable action. If your lender used unfair lending practices when you got your mortgage loan, you might be able to fight a foreclosure.

If you think you’re a victim of predatory lending, consider talking with a lawyer experienced with anti-predatory lending laws. You can also file a complaint about a predatory lender with the Consumer Financial Protection Bureau or your state Attorney General's office.

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