Predatory lending is when lenders try to manipulate borrowers into taking on a loan, using abusive, deceptive, or unjust practices. They might lie about the real loan costs, locking borrowers into hefty payments.
While it’s common for predatory lenders to target the vulnerable, such as people dealing with immense financial strain, anyone can fall victim to them.
If you’re dealing with a predatory lender, you have rights, can recover your funds, and get out of the situation.
Read the rest of this article to learn about predatory lending types, how to spot them so you protect yourself, what to do if you’re in a predatory lending situation, and how a lawyer can help you.
What is Involved in Predatory Lending?
Predatory lending will have at least one of the following:
- The lender offers the borrower loans they can’t afford, without considering their ability to repay them.
- The lender tries to make a borrower refinance a loan so they can charge high fees.
- The lender lies about the loan obligation to lock in the borrower.
Common examples of predatory lending include:
- High interest rates and fees on loans.
- Complex language in contracts to deceive borrowers.
- Balloon payments, which is when low initial payments become unaffordable.
- Payday loans.
Payday loans are a common example of predatory lending. They’re short-term loans with high interest for small amounts. To pay the loan, you’ll give the lender your banking information or write a check to pay the full amount. Such loans are dangerous because they’re expensive and can harm your credit.
How Can You Spot Predatory Lending?
To avoid becoming a victim of predatory lending, there are some red flags to keep an eye out for.
Costs aren’t Disclosed
Lenders need to inform borrowers of all loan costs immediately. Predatory lenders are deceptive about the costs involved or use complex language when describing them that borrowers might not understand.
It’s a Too-Good-to-be-True Offer
It’s common for predatory lenders to make exaggerated claims, such as that you’ll settle your debt with ease or gain an amazing loan despite bad credit history. These are warning signs you’re going to be saddled with high costs after agreeing to the loan.
There are Online Complaints Against the Lender
Do your research into a lender before you take out a loan with them. Search for them online to see what others who have worked with them have to say about their service. The predatory lender might have many complaints or grievances against them.
The Lender Requests Banking Details
Predatory lenders might request your banking information so that they can set up automatic payments. This is dangerous as it provides access to your funds.
No Credit Checks are Done
While it might seem appealing if you have bad credit history, predatory lenders won’t conduct credit checks. It’s common practice for reputable lenders to conduct this check beforehand so they can see if you can pay off the loan debt.
They Don’t Report Payments to the Credit Bureaus
Reputable lenders will report your payments to the main credit bureaus, which can help to improve your credit score. Predatory lenders don’t do this, meaning that you get no benefits of good credit from making the loan payments.
What Should You Do if You’re the Victim of Predatory Lending?
If you suspect you’re dealing with a predatory lender, here is how to protect yourself and your money.
Ask Questions
You should ask the lender for important information about the loan, such as the monthly payments you'll have to make, the annual percentage rate (APR), the total loan cost, and the loan length.
When you notice that the loan estimate mentions vague terms like “commitment fees,” you should ask them what these are. If you don’t receive clear information and answers to your questions, you shouldn’t accept the loan offer.
Report the Predatory Lending
When dealing with a predatory lender, you should report them to the Consumer Financial Protection Bureau (CFPB) and your state consumer protection organization.
Collect Evidence
It’s crucial to have proof that you’re dealing with a predatory lender, as it strengthens your case against them. This can include having a copy of a vague or deceptive loan contract or messages from the lender.
Seek Legal Guidance
Consult with a lawyer who can help you to identify the predatory lending and be compensated for it.
While it can be stressful to find a lawyer when you’re in need of legal guidance, ContractsCounsel, an online legal network connecting clients with vetted lawyers, makes the process easy and convenient.
A lawyer will help you in the following ways:
- They’ll review your loan contracts to spot red flags such as deceptive or illegal clauses.
- They’ll identify disclosure violations.
- They’ll negotiate settlements.
- They’ll protect you against collection harassment or lawsuits.
- They’ll represent you in arbitration or court.
What Legal Remedies are There for Predatory Lending?
Your lawyer will be able to identify if a lender is displaying wrongful or illegal behavior. Based on this, they might want to pursue legal action, such as filing a lawsuit for damages.
There’s also the Right of Rescission that could apply to your case. This enables you to eliminate home-secured loans. If your lawyer can prove that this type of loan wasn’t properly disclosed to you, it can result in a successful rescission.
It’s common for predatory lenders to use illegal behavior or practices. Based on your specific case, your lawyer might suggest a court order to stop them, such as if the lender is trying to seek foreclosure, as long as there’s evidence for your case. You and your lawyer will work together to build a strong case filled with evidence.
Do you need a lawyer for predatory lending?
You should contact a lawyer on ContractsCounsel. All lawyers on the platform are vetted and professional, with years of expertise in dealing with predatory lenders. They will inform you of your rights and help you navigate the case, putting your mind at ease that you’re in capable hands.
